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David Galland is Managing Director of Casey Research, LLC. (http://www.caseyresearch.com/), and the Executive Director of the Explorers' League. His career in the resource and financial services industry dates back to a stint working underground at the Climax mine in Colorado, following college.... More
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  • Discerning The Value Of Information

    It has become tradition at La Estancia de Cafayate for Casey Research to host an intimate conference in conjunction with the Harvest Celebration. In the most recent of the series, Bill Bonner, editor of the Diary of a Rogue Economist and a friend of long standing, kicked the program off with a thought-provoking discussion about the nature of information.

    With a nod to Nietzsche, Bill dissected the nature of information into two categories.

    The first sort is that which is derived from direct observation. For an example, Bill pointed to the tangible information that comes from living in a tribal village. As a member of the tribe, you knew your neighbors, you knew what sort of crops would grow in the different seasons, where and when to hunt, etc.

    Paraphrasing Bill, "If a member of the tribe came running into the village yelling that an enemy tribe was about to attack, you would have direct knowledge that there was an enemy tribe residing in the area and that the fellow doing the yelling wasn't the sort to just make it up. So you could be certain an attack was likely."

    Given this high quality of information, Bill continued, you would be able to make an informed judgment about what action to take. You could, for instance, prepare to defend your village against the intruders, take flight, or remain and hope for the best. Regardless of how you acted, at least you knew you were acting on good information.

    By contrast, there is the second type of information, that which Bill calls "public information." This is the sort of information that people believe is "true," but only tangentially and without having personally observed it. In other words, it is extremely poor-quality information, the sort of thing regularly ginned up in modern times by the media to attract eyeballs on advertisements, or promoted by politicians or businesses to further their own interests.

    It's Bill's hypothesis that because the evolution of the human mind occurred against a backdrop of life-and-death decision-making based on hard information, our modern minds are genetically ill-equipped to deal with public information. In other words, we evolved trusting that the information we were receiving was reliable, leaving us susceptible to believing that substantially all the information we receive today is reliable.

    Making the point, Bill referred back to the case of the villagers being alerted by a fellow villager to a pending attack. So alerted, the villagers knew all they needed to know in order to decide which of the aforementioned actions to take.

    But what happens when, in today's world, someone comes running into the virtual village shouting "The globe is warming, the globe is warming"? Or, "The economy needs quantitative easing!"

    Because of the entirely understandable evolutionary prerequisite that we pay attention to hard information or risk being erased from the genetic pool, the human mind is essentially wired to accept that the threat from global warming is real… or that quantitative easing is needed. Or that Iraq somehow posed a threat requiring the spending of trillions of dollars and wasting untold lives to blow it to pieces.

    How can we really know that any of this public information is true? We can't. Yet with a sufficient amount of arm-waving in the global media, large swaths of the populace accept the information as true, setting in motion a giant snowball of political policy and the attendant massive misallocation of resources.

    Into the Wild

    As a related aside, during the two-day break between the events, Doug and Ancha Casey, John Mauldin, and I made the trip to Bill Bonner's estancia - a fairly grueling four-and-a-half-hour drive on bad roads (and in some parts, no roads at all) into the mountains above Cafayate.

    Like many of Bill's friends, I was never quite sure why anyone would want a home on a property that is a seven-hour drive from the nearest commercial airport, and most of the drive on washboard roads. But when you get there, you understand. The estancia encompasses a massive and surprisingly verdant valley - I think on the order of 200,000 hectares - a veritable Shangri-La stretching as far as the eye can see.

    Now, Bill is a pretty well-off guy, but unlike many people who have amassed considerable wealth, Bill generally shuns the superficial trappings in favor of simple pleasures and in undertaking hands-on projects that are anything but simple. For instance, along with his sons and a couple of gauchos, he designed and built a small villa with three vaulted ceilings, using methods perfected by the Romans (he got the basic idea from a book on Roman architecture).

    Very impressive, but more to the point, over the course of his life and his many studies, Bill has become a skeptic about much and maybe most of what he hears in the media, or that spews forth from the mouths of the politicians. Instead, he has developed a Missouri-like attitude of needing to observe something himself before believing it.

    The important idea that Bill shared and that I am trying to share, is that if you take the time to step back and analyze the information you receive and parse it into that which you know to be true based on your own observations, as opposed to what is popularly accepted as true simply because it was printed in a news journal or said in a broadcast, your attitude about many things may change.

    It may take some time and practice to hone your skills in separating discernible facts from public information that may actually be utter fiction… but the payoff in adopting this attitude can be significant.

    For example, rather than getting all worked up over something like global warming, you might reflect on the observable fact that virtually every generation has been plagued by prophets of doom - overpopulation, the coming ice age, Ebola, HIV, bird flu, swine flu, global warming, etc., etc. - and so simply don't concern yourself with it.

    (The doomsters seem to be tuning their Hype-O-Matics into the idea that the world is about to be wiped clean by a super-meteorite. In fact, the threat is so severe that the US Senate is now holding hearings, with one legislator actually asking that Bruce Willis make an appearance… you know, because he starred in a sci-fi movie dealing with the topic.)

    In prehistoric times, anyone running into the village shouting that the enemy was about to attack when they weren't would quickly find themselves hanging upside down over a fire. By contrast, in modern times, with the warnings cloaked in pseudoscience or religiosity and rebroadcast globally by the complacent and complicit media, the purveyors of such bad information tend to end up being feted at rubber-chicken dinners and padding their pockets with grant money from universities and governments.

    Recently, I got into a discussion on this general topic with a fellow Estanciero, and we both concurred that living here in a remote wine-growing town far from the "noise" of the modern world has had a tremendously beneficial effect on our stress levels. The "news" - or public information, as Bill would term most of it - has almost zero presence in our daily lives.

    Why Bifurcating Your Information Matters

    In addition to saving yourself time and worries by mostly ignoring public information, learning to discern the difference between the two can lead to better decision making, in your everyday life and in your investments.

    As a case in point, during the conference here, someone in the audience asked a question about quantitative easing. Doug Casey took hold of the microphone and replied along the lines of, "People need to stop using constructs such as 'quantitative easing.' Those are just terms that politicians have come up with to obfuscate the truth. The proper term for quantitative easing is currency debasement, plain and simple."

    Going back to the observable, we know from history what happens when a king or officialdom adopts a policy of energetic currency debasement: the currency units being debased invariably become worth less and less. There is no example in history where debasing a currency doesn't drive the purchasing power down over time. And certainly none where debasing a currency causes it to appreciate over time.

    Jumping back to public information, "everyone" knows that the dollar is king... the best car in the junkyard, the two-ply toilet paper in a world where all other currencies are mere single ply. But is that accepted truth actually true?

    Take a look at the following two charts, taken from the presentation that Frank Trotter, president of EverBank Direct, gave in Cafayate. The first shows the US dollar against 19 major currencies. It's hard not to note that the mighty dollar has been in a long-term downtrend.

    (click to enlarge)

    The second of Frank's charts shows the one- and ten-year performance - through 2012 - of some of the EverBank World Currency team's favorite currencies against the dollar.

    (click to enlarge)

    Of course, not shown in this mix is the performance of gold, the über-currency, over the same time periods. In 2012 gold rose by only about 3.5%, but for the ten-year period, it rose from $278 to $1,657, a gain of about 500%.

    I'll have a bit more to say about gold, and particularly gold stocks, momentarily… but before that, I want to toss out one more item of observable information as it relates to today's economy, political environment, and the outlook for the dollar.

    The chart here is of federal spending in trillions of inflation-adjusted dollars. That means that the increase in spending shown accurately reflects the growth in government in real terms (as opposed to reflecting the decline in purchasing power from the currency debasement).

    It also shows the scale of the purportedly draconian cuts in federal spending to be made as part of proposed austerity measures… revealing all the hand waving about the severe consequences of said cuts as just so much public information… or, if you prefer, misinformation.

    What you can also observe from this chart is that the federal government has grown into a behemoth, a huge prop under the economy… the world's largest economy, for the record. The idea that the politicians will find the backbone to cut this level of spending back to the point where it balances the budget is ludicrous. Even if enough of them wanted to make such cuts, the ensuing depression would trigger a public backlash that would see them voted out of power in the proverbial blink of an eye.

    Which is to say that the current trend of currency debasement is almost certainly going to continue until it simply can't anymore.

    And that brings me back to gold and particularly gold stocks.

    Downturn Millionaires

    Even though the first of the two events here in Cafayate was beginning, the partners of Casey Research got together and decided that the state of the gold share market had reached such a dismal state that we had to take action on behalf of those of our subscribers with investments in these markets.

    And so we hit the phones and email and arranged for Jonathan Roth, a highly respected journalist and film maker, to fly down to Argentina, picking up a crew in Buenos Aires on the way. Our purpose was to tap into the minds of some of the conference speakers, as well as mining share experts back in North America who were invited to join by live video feed.

    The program, which some wit back in the office named Downturn Millionaires, has as its primary mission to put today's junior mining share markets into clear perspective.

    And that perspective, I am convinced after moderating the impromptu webinar, is that the meltdown in the junior resource stocks over the last year has created a once-in-a-generation opportunity for life-changing profits. That's because while gold bullion has been largely flat over the last 12 months, the junior gold and silver shares have been positively bombed out.

    And by bombed out, I refer to the observable fact that even great companies - with great management teams, money in the bank, and large proven resources of gold and silver in supportive political jurisdictions - have seen their share prices lose over 50% of their market value over the past 12 months.

    That this has occurred against the backdrop of only a modest consolidation in gold bullion prices and a massive global commitment by central bankers to currency debasement, represents a huge disconnect.

    So, what's it to be? Is the long bull market in precious metals and precious-metals shares over? Or does the disconnect point to just the sort of once-in-a-generation profit opportunity for those bold enough to act (selectively, of course)?

    The program features Doug Casey, Bill Bonner, Rick Rule, John Mauldin, and Louis James, the globe-trotting senior editor of our International Speculator service who talks about the specific stocks to add to your portfolio today.

    The program is now live on the Casey Research site. Because of the importance of the topic, we have made it available to everyone to watch for free.

    Register to watch this online video event now.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 17 8:50 PM | Link | Comment!
  • The Casey 'Downturn Millionaire's' Message: Why David Galland Is Answering His Broker's Calls Again

    Natural resource investors have experienced a tough year. The price of gold bullion has fallen from its 2011 highs and the prices of even good junior companies have been slashed to as little as half of their former valuations. All the more reason to start returning broker phone calls according to David Galland, Casey Research managing director, speaking on the Friday eve of the airing of a webinar he is moderating, featuring some of the biggest names in the industry.

    The webinar, "Downturn Millionaire: How to Make a Fortune in Beaten-Down Markets," features Casey Research Founder Doug Casey, Sprott Global Resource Investments Founder Rick Rule, International Speculator Editor Louis James, "Endgame" Author John Mauldin and Diary of a Rogue Economist Editor Bill Bonner. In this interview with The Gold Report, Galland shares the motivation behind assembling this all-star cast for a golden wake-up call.

    The Gold Report: You are moderating a webinar for Casey Research titled "Downturn Millionaire: How to Make a Fortune in Beaten-Down Markets." This is going to air on Monday, April 8. It's an interesting title considering the current state of the precious metals market. Gold hasn't even flirted with $1,900/ounce ($1,900/oz) since 2011 and dropped below $1,600/oz. Silver fell from $43/oz that same year to below $30/oz. Will this conference deliver the painful message that the bull market is over or do you have some good news for listeners?

    David Galland: We have some good news. The genesis of the webinar is somewhat interesting. Long-term friend Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., sent an e-mail saying, "Guys, this is a real market capitulation and one of those rare opportunities to make serious money on the rebound."

    The proverbial light went off in our collective heads because we, too, have seen this sort of extreme opportunity several times during our careers. And so we scrambled to pull this webinar together in about a week to help make our subscribers and friends aware of the importance of the market capitulation and how to take full advantage. Simply, this is one of those rare moments when absolutely no one wants anything to do with gold stocks, even though gold bullion itself really hasn't sold off all that much compared to the gold stocks, which are off by as much as 50%.

    The overarching purpose of the webinar, therefore, is to serve as a gut check and to help people focus on the opportunity. After all, the global demand for minerals is only going to continue to grow, and the role of precious metals is especially important given the complete lack of monetary and fiscal restraint on the part of the U.S. and other large governments. The role of gold and silver is certainly not over, which points to a huge opportunity because the tremendous apathy and capitulation in the gold share market has knocked even the best companies flat on their backs.

    TGR: The demand argument makes sense, but were the smart people in this group able to come up with the reason why the stocks are doing so poorly compared to the bullion?

    DG: We discussed the stocks in depth, starting with the macro-picture for precious metals, and then, by extension, why people want to own the stocks. The speakers had some great insights about why we've gotten to this point. Then they focused on what they see ahead for the sector and specific ways to profit as the market bounces back.

    TGR: One of the featured speakers is Doug Casey, chairman of Casey Research. When we interviewed him in January for "The World According to Doug Casey," he said "speculation is capitalizing on politically caused distortions in the marketplace." We've had years of quantitative easing, but none of the inflation he predicted. Is the government winning? Is that answered in the webinar?

    DG: I wouldn't say we've had none of the inflation. The government does its very best to cover it up but we all know that prices have gone up considerably on a lot of things. Look at the basics-foodstuffs, energy and so forth. Are governments winning? No, they are just digging themselves and their respective economies a deeper and deeper hole. That said, you could certainly say that at this stage of the battle, people seem to have forgotten that there's a connection between money printing and inflation. It is baffling because deconstructing the Great German Inflation and other inflations around the world, it was clear to everyone that money printing was the primary culprit. Yet people seem to have once again forgotten that connection. The faculty in this webinar address the questions of where the inflation is heading, why hasn't it shown up and what can we expect when we see it. The consensus view among the faculty was that we're looking at inflation rates in the high double digits and maybe worse within the foreseeable future, maybe not tomorrow, but it will come.

    Governments around the world seem to think that their economies are like washing machines that can be fixed with a bit of tinkering, but they'll have serious trouble turning off the money printing machines. Social promises have been made, hundreds of millions of people now rely on governments for the bulk of their sustenance.

    Yet it's important to remember that governments don't actually make anything, except maybe wars. Where is the money going to come from for all these social programs? It's going to be magically whipped up out of thin air essentially. That will have an effect on the purchasing power of the currency units already in circulation, and it will have a positive effect on the prices of tangibles, most importantly gold and silver.

    TGR: Participant Bill Bonner, who is the editor of The Diary of a Rogue Economist, also watches macrotrends. Does he see any end to the emergency-of-the-week theme playing out on the global stage? And does he have any suggestions for how investors can protect themselves from the fallout?

    DG: Bill completely understands the role that gold plays in preserving personal net worth, but doesn't usually discuss gold shares per se. Even so, in our webinar he said something that really got my attention, "The time to buy these shares is when nobody wants to own them, when even you don't want to own them." That struck home with me because I've been investing in this market since the 1970s, and long ago I learned that the time you really want to back up the truck is when you have exactly the kind of bombed out markets that we have today.

    As Bill spoke, it really resonated because I, too, have been ducking calls from my broker, and I have a lot of respect for my broker. Worst of all, my broker is calling me offering me financings on great companies that come with five-year warrants, which is a very rare thing and only seen in periods of complete capitulation. But I didn't want to take the guy's calls because of the same mistake a lot of people are making at this point, which is just to assume that the market is dead forever when, in fact, that's very much not the case.

    TGR: So when David's scared, that's the time to buy. Is that what you're saying?

    DG: Well, not so much scared. I just didn't want to hear about the sector anymore. Listening to this webinar inspired me to spend time looking at stocks of companies that I know have great projects, and great management and cash in the bank. Universally, these great companies have sold off by 50-60% or more. Yet, there is nothing wrong with these companies other than this panic out of the risk-on trades in the junior resource sector. That was a real wake up call.

    TGR: Webinar speaker John Mauldin, author of Thoughts from the Frontline, predicted, in a November interview with us, "John Mauldin's Roadmap to Surviving the Fiscal Cliff," that politicians would find a way around the fiscal cliff that was looming at that time, but he warned that the economy would be in for a bumpy ride. In this webinar, did he have any predictions for when or how things would get better?

    DG: John jokes that even as a relative pessimist, he looks like an optimist when in the company of the Casey Research team. John still thinks there is the possibility of a political solution to the economic crisis. If there is, I haven't seen it, and nothing on the horizon looks like it's going to happen as far as I can see.

    Despite his cautious optimism, John was absolutely in sync with the rest of the speakers' opinions about the great contrarian opportunity in gold and the gold share market, an opportunity that most people will miss, but shouldn't.

    TGR: Another speaker, International Speculator Editor Louis James, stressed the importance of thinking long term when we interviewed him last September for the article "How Investors Can Protect Themselves in a Politicized Economy." He said the junior market was looking "bottomish" and it looked like a good time to buy. Will he be mentioning what companies he likes in the webinar?

    DG: He talks about a couple of companies he likes as examples. He's also quite adamant about the criteria that people should use in deciding what precious metals shares belong in their portfolio and what shares people should be selling now. The reality is that a good number of these companies will not survive this downturn. If you're sitting on a company with no cash in the bank, an only so-so project and average management, there's a reasonable chance it's going to go to $0 even though it may have already gone down by 50%.

    In the webinar, Louis covers the specific aspects of companies you want to own in your portfolio and the ones you should lose. It's an important message because these things are, as Doug Casey likes to say, not family heirlooms but burning matches. And the ones that aren't going to make it just aren't going to make it. You have to come to that reality. But the good news is that by rotating into the certain winners you can claw back pretty quickly when the market sentiment shifts, as it most certainly will.

    TGR: Another one of the webinar speakers, Rick Rule, is a very popular expert with The Gold Reportreaders. When he spoke to our president, Karen Roche, last November for an article titled "Be a Risk Manager, Not a Reward Chaser," he called gold "catastrophe insurance." Does he have any specific advice for how investors should adjust their portfolios in a downturn?

    DG: I would say similar to Louis, his message is very clear. There are definitely companies that aren't going to make it, and then there are companies that are going to make it and make it in a very big way. It was interesting because I've known Rick for a couple of decades now and I have seen him give a lot of presentations, but he was very vocal in pointing to an urgency in this market that most people are missing.

    Rick, Louis, Doug and all of the people on this webinar are really on the same page about this. Investors need a wakeup call. They need to really be paying attention at this moment because it's one of those rare, once-in-a-generation opportunities to, as John Mauldin says, get in front of a bubble.

    We've seen this before. We saw this in July 1982, another classic capitulation with gold falling from over $800/oz in 1980 to below $350/oz. As you might imagine, the gold shares were completely sold off with the volume on the Canadian stock exchanges falling to next to nothing.

    But then there were a couple of discoveries in the Hemlo district of Canada, coinciding with a rally in gold, and the market skyrocketed. One of the companies involved in a Hemlo discovery, Golden Sceptre, went from a low of $0.41/share up to $31/share in about a year. Another, Goliath Gold, went from $0.45/share in March 1982 to $32/share in March 1983, an increase of over 7,000%.

    That sort of opportunity is pretty much only available following periods of market capitulation such as we are experiencing today. People have forsaken reason, and they don't want to know about gold stocks. That alone should point the way to a classic contrarian opportunity where pretty much everybody who is going to sell has sold, leaving only one way to move-up-for the companies with the right combination of attributes to survive.

    TGR: So as painful as this has been for all of us over the last couple of years, after listening to these speakers, are you ready to say you welcome a down market for the opportunity it affords?

    DG: Absolutely. And as I said, it was a complete wakeup call for me. Until participating in the webinar, I had completely stopped paying attention to the sector. Now I am completely re-engaged and talking to my broker again.

    TGR: Thank you for taking the time to talk to us.

    DG: It was nice to be with you.

    If you have any interest at all in making the kind of money most investors only dream about, you simply have to speculate in today's junior precious metals explorers. Historically, they reverse with a vengeance after the kind of extreme overbought conditions we're seeing today… like Conquistador, which rose 1,874% in 1996… Silverado Mines, which shot up 3,988.5% in 1980, or Golden Scepter, which skyrocketed 7,650% in 1983.

    To show you why the precious metals sector is on the cusp of rewarding bold speculators with similar gains and how to position yourself to maximize this opportunity, Casey Research is hosting Downturn Millionaires. This must-see web video event features contrarian investing legends Doug Casey and Rick Rule, who have leveraged beaten-down markets to fortunes multiple times for themselves and their clients… John Mauldin, chairman of Mauldin Economics … Bill Bonner, founder of Agora Publishing… and Casey Research Chief Metals and Mining Investment Strategist Louis James, who will reveal what to look for in a junior mining company, as well as one company with millions of proven ounces of gold in the ground that's selling at a huge discount.

    Downturn Millionaires premiers at 2 p.m. on April 8 - to reserve your spot, click here now.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 05 4:48 PM | Link | Comment!
  • Is American Justice Dead?

    Every nation-state has a body of laws woven into the fabric of society. As Peruvian economist Hernando de Soto has commented on extensively, the stronger the rule of law, the stronger the economy.

    And by "stronger" laws, I mean laws that are impervious to tampering for personal or political gains. The connection between a sound judiciary and economic health is readily comprehensible, except maybe to a politician… businesses and individuals are far more likely to invest capital in a country with understandable laws that are impartially and universally enforced than if the opposite condition exists.

    That's because the lack of a consistent body of law breeds uncertainty and adds a huge element of risk for entrepreneurs. That is the case here in Argentina, where hardly a week goes by without La Presidenta and her meddlesome comrades cooking up some new hurdle for businesses to overcome.

    Which brings me back to the matter at hand - American justice on a slippery slope.

    Few recent cases make the contention clearer than the announcement last week by the US Justice Department that it had settled its case against HSBC for acting as the bag men for Colombian and Mexican drug cartels. The fine, $1.9 billion, amounts to about five weeks of revenue for the bank.

    And that was pretty much it.

    Matt Taibbi of Rolling Stone magazine, who can run hot or cold when it comes to reporting, in my opinion, nails his column on the verdict, which you can read here.

    The basic setup is that for years, at the highest levels of HSBC, the bank worked hand in glove with the drug cartels to launder their money. So smooth was their relationship that the drug gangs used special cardboard boxes for them to fill with cash - boxes that were designed to fit easily through the teller windows of the HSBC branches in Mexico.

    Now, don't get me wrong - I am 100% against the so-called "War on Drugs." That there are hundreds of thousands of Americans in prison for the "crime" of voluntarily ingesting recreational drugs, or providing said drugs in a rare free-market transaction (there's a willing buyer and a willing seller and no regulations - at least none that anyone pays any attention to), is an abomination.

    And so it is that the US has the highest prison population in the world, and by a wide margin: on a per-capita basis, it is 33% higher than the closest contender, Russia.

    If you take into account everyone under "correctional supervision," 3.1% of the US population is either in jail or on probation (for blacks, it's a stunning 9.2%). According to Human Rights Watch, since 1980 the number of people in US jails for drug charges has increased twelvefold.

    Yet, the money men for the murderous cartels that supply the stuff - the sort of fat-cat villains that serve as the centerpiece of every James Bond movie - get off with a hand slap.

    How is this possible? The answer is that, just like the much-maligned "banana republic," the judicial system in the Anglo-Saxon world has been bifurcated into two systems - one for the politically favored and the other for the rest of us.

    In the case of HSBC, the rationale for management being spared even a criminal trial, let alone years behind bars, is that the bank is too big to fail. And that should anyone within the bank be collared for their colossal crimes, it could provide the trigger for the widespread collapse of the global financial system.

    To which an Anglo-Saxon from the UK might retort, "Bollocks!" This is rather a case of the politically connected and their equally politically connected, high-priced law firms twisting the judicial system to their purposes.

    Another recent case is that of the LIBOR fixing scandal.

    As you know, in this case a group of banks clearly conspired to rig the rates on the interest-rate index used to underpin over $300 trillion in loans. As the scandal was revealed, it was also revealed that top tax dodger and now US Treasury Secretary Tim "Timmy" Geithner was aware of the rigging as far back as at least 2007 when operating the Federal Reserve Bank of New York.

    Yet Geithner's elevated position in the Obama administration meant that this inconvenient revelation quietly faded into nothingness. As did the clear implication that if Geithner knew about it, so did untold scores of others at the Fed and other institutions at the time.

    Meanwhile, back in the present, instead of rounding up the heads of these institutions, it was announced this week that a handful of floor traders - the ever useful minions - have been fingered to take the fall. For the sake of the public show, I suspect the fall will be pretty hard.

    Hell, the last time I checked, even Jon Corzine, who as a former senator and governor of New Jersey is the über-insider, is still a free man despite being the lead actor in the bankruptcy of MF Global and the subsequent looting of billions in customer funds. No one, except maybe Corzine himself, thinks that he isn't criminally complicit, yet, at this writing, there isn't even a hint he'll be prosecuted.

    As David Webb has so thoroughly documented, a spate of cases over the last decade has set a clear precedent that financial institutions - at least those of a size to count with the political class - are pretty much free to lie, cheat, misrepresent, and even use their clients' funds to trade for their own book.

    And if things go wrong, they can pass the losses on to the clients, or in the case of Corzine simply shrug his Savile Row-clad shoulders, and feign ignorance about where said funds went.

    It Goes On… and On…

    And the conniving and criminality doesn't stop at the judiciary but has infested pretty much every corner of the government.

    A personal recent favorite was Hillary Clinton's oh-so-convenient bout of fainting that kept her from testifying about the truly bizarre attack on the Benghazi consulate, thereby skipping the direct damage to her career that would have resulted from having to answer the unanswerable in front of television cameras.

    Then there's the sweetheart deal embedded in the soon-to-be-updated federal regulations related to mortgages. Given all the abuses leading up to the housing crash, John Q. might posit that there will be strong teeth in these new regulations. Sure, there's a couple - but lookie what else is in the new regs; this from the New York Times

    As regulators complete new mortgage rules, banks are about to get a significant advantage: protection against homeowner lawsuits.

    The rules are meant to help bolster the housing market. By shielding banks from potential litigation, policy makers contend that the industry will have a powerful incentive to make higher-quality home loans.

    But some banking and housing specialists worry that borrowers are losing a critical safeguard. Industries rarely get broad protection from consumer lawsuits, and banks would seem unlikely candidates given the range of abuses revealed during the housing bust.

    Mind-boggling.

    Skipping across the pond, we have the truly incredible case of Julian Assange, who is now a prisoner, surrounded by upwards of 100 police officers, in the Ecuadorian embassy in London where he's been seeking asylum.

    At one point, a senior British official suggested they were seriously considering throwing hundreds of years of diplomatic precedent out of the window by storming the embassy to get their man.

    Yet his purported crime, having consensual sex with two different women without a condom (in one case, he had one, but it apparently broke) would, at most, be treated as a minor offense in pretty much any court, in pretty much every country in the world. Unless, of course, he knew he had AIDS and was deliberately trying to transmit it, which he wasn't.

    Do your own research, and maybe you'll draw a different conclusion - here's one fairly thorough story on the charges against Assange - but that the UK government is willing to spend untold sums of money it can't afford keeping him penned up in the Ecuadorian embassy smacks of collusion and corruption.

    What's really going on, of course, is that Assange's WikiLeaks organization embarrassed the power elite by doing what the media no longer does - getting to the truth, in this case releasing a stash of embarrassing diplomatic cables.

    While Assange is fighting the good fight, it's a fight against entrenched political interests, and so it's a losing battle. Aided by the corrupt judiciary or, failing that, the malleable military, it's just a matter of time before he ends up in a cell next to Bradley Manning whose tortured corpus is now on trial for giving up state secrets that were really not all that secret.

    In economic policy, too, the evidence of two different systems is glaring. Look no further than the Fed's recent decision to light the afterburners on over a trillion in new money creation each year.

    Whom does such a policy help? The politicians, of course, by allowing them to claim they "fixed" the economy that they broke in the first place… when all they are really doing is replacing the capital formation and spending of a healthy private sector with the polluted effluence of government disbursements.

    Whom does such a policy hurt? The population at large, by eroding the value of everything they own and eviscerating their ability to earn money on their money through a free market in interest rates… all the while fostering yet more malinvestment in the Potemkin villages of an uneconomic solar industry, electric cars, high-speed trains, etc.

    Make no mistake, the Fed and the government are keenly aware of the damaging consequences of their actions - but, out of self-interest, take those actions nonetheless.

    The enviro-socialists that have bought their way into the corridors of power provide another array of examples, using laughably bad science and arbitrary rulings to disadvantage key sectors of the economy such as energy and mining.

    What's It Mean to You and Me?

    There is little question that the vast majority of the public is ignorant or apathetic, or both, to the pervasive corruption of the political classes and their financiers.

    But even if they were paying attention and outraged, the fact of the matter is that things have degraded to the point where there is next to nothing John Q. can do about it. Sure, you can write your Congressman; just be sure to be extra polite, or your letter will end up in the hands of zee Homeland Security.

    Ditto if you write angry emails and send them to all your friends. Just don't make the mistake of thinking there is still such a thing as privacy or the right of free speech in the Anglosphere.

    And heavens forbid you try to organize a physical protest. Next thing you know, you'll end up wearing a pair of these bad boys coming to your friendly police officer's belt soon.

    (Not only do these next-gen cuffs restrain you, but they allow the arresting officer to remotely deliver electric shocks and, if that doesn't do the trick, even inject drugs into you.)

    Of course, if your company or industry wants to fight it out in the courts, you have to be ready and able to spend millions in legal fees fighting a government with unlimited funds (provided, of course, by your taxes and money borrowed from the Chinese or ginned up by the Fed).

    What I'm trying to say is that, regardless of what the popular corruption indexes show - and those are typically based on fairly suspect surveys on matters such as transparency in corporate reporting or whether bribes are required to do business - when you take into account the systematic skewing of the judicial and electoral systems to favor the entrenched politicos and their friends in high places, the level of corruption in the Anglosphere would make an African despot blush.

    It's not an accident that the Republicans and the Democrats, two sides of the same coin despite all the rhetoric, are never remotely at risk of losing their collective grip on power - the system has been carefully and thoroughly rigged to prevent that from happening.

    Logically, if there is virtually nothing the public at large can do about the rigged game they are forced to live with, then it comes down to decisions we make as individuals.

    Some general approaches for your consideration.

    • Suck it up. The Stoic approach is to recognize there are certain things you can't do anything about, so put the hypocrisy and self-dealing of officialdom and their enablers out of mind and live your life the best you know how.
    • Profit from it. While it may seem counterintuitive, the more challenging the environment for business creation, the more money an especially hard-charging entrepreneur can make. This is why Asian shop owners open up in ghettos and why the margins for "war profiteers" are so high - because they literally have to risk life and limb to collect them.

      A successful acquaintance recently told me that, as the head of the Argentine branch of a major international electronics brand, his division was regularly able to pull down margins in excess of 40% while his counterparts in less volatile political environments were happy with less than 10%.

      It just takes an extra measure of patience and fortitude to overcome the challenges that scare less determined individuals away.

    • Move West… or South, but probably not North. A combination of #1 and 2 above, the brave minority might want to consider taking the show on the road.
    • If you can't beat them, join them. As Doug Casey has often pointed out, the effect of Pareto's Law operating over time on the large democracies has resulted in the worst sort of people controlling the levers of government at the federal, state and local level. If you happen to be a sociopath with control issues, then you might want to hop on the gravy train and worm your way into government, or into one of the many parasitic enterprises sucking the life from the body politic.
    • Go outlaw. Yesterday, a flash mob gathered in the southern Argentine city of Bariloche for the sole purpose of looting a large store of electronics, food and booze, and sundry other items that will make the Christmas holidays all the more festive.

      When I heard of the incident, I mentioned to my wife that this could very well be the proverbial first shot in the breakdown of civil society in cities around the world. And sure enough, as I was writing, the news broke that spontaneous mobs have formed in a number of cities around Argentina for the sole purpose of looting stores.

      This is precisely the sort of thing one can expect in an economy laid low by political corruption, malfeasance and self-serving meddling. When people lose hope, and lose faith that the judicial system will protect them from the entrenched interests, then it is well within the range of some of those people to just say screw it and go outlaw.

    I could be wrong, but I think what happened in Bariloche yesterday has the potential to be just as seminal as the self-immolation in Tunisia that set off the Arab Spring.

    The implications of mobs deciding to come together to just take what they want are potentially huge. In the Anglo-Saxon world, it could provide exactly the excuse needed to bring down the stainless-steel curtain built with hundreds of billions of homeland security expenditures over the past decade.

    In fact, while I am probably overstating it, the action of the mob in Bariloche yesterday could be the missing link between Neil Howe's Third and Fourth Turning, ushering in the next and most troubled era.

    It's ironic that it's happening in here in my new retreat in Argentina, but it's of no personal import because our new hometown of Cafayate is rural, small and very successful, and the sort of place where everyone knows everyone else. And, besides, there are no large supermarkets to raid.

    In addition, despite the dark era of military rule (or perhaps because of it), Argentina is not a violent culture, and the big cities are few and far between. The same can't be said of places like Chicago and Detroit, where flash mobs have been increasingly cropping up with the primary intention of committing violence.

    How fast and how far things will spread from here is only a matter of conjecture, but the range of possibilities is wide.

    Regardless of whether the rule of law continues to be diminished through the acts of corrupt politicians or a mob - or through the militarized arm of the politicos trying to control the mob - I fear the knock-on consequences on the economy and on society at large.

    I really don't want to be a Chicken Little, but taking some basic precautions to protect yourself and your assets is only commonsense at this juncture.

    Trend hunters see the writing on the wall and can prepare themselves accordingly for the coming shifts. Those who do so successfully in the investment world can realize life-changing gains... such as David Galland's highly successful contrarian speculator friend and business partner, Doug Casey. Being able to get inside the mind of someone like this is a rare treat... a window into the thought processes of a self-made millionaire offers insights that can stimulate, entertain, and even educate others.

    Right now you have an excellent opportunity to get inside Doug Casey's mind, to learn his thoughts and feelings on subjects ranging from investing and speculating to American politics, culture, and education. His new book, Totally Incorrect, showcases Doug's radical libertarian thinking and irreverent personality. Whether you agree with Doug or not, Totally Incorrect will get you thinking - and probably investing - in new and better ways. Get your copy today.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 09 4:20 PM | Link | Comment!
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