Is This "IT?"
We've been saying for
some time that the global house of cards could topple at the slightest
rustling of the wings any of a number circling black swans. Something like
the ECB turning draconian with Cyprus and scaring the heck out of everyone
else in the EU seems more like a swan dive right into the heart of the
teetering structure.
Many mainstream
commentators are dismissing the significance of the Cyprus debacle – but the
same type of people also dismissed the threat of the subprime crisis until it
could no longer be denied.
This does not prove that
what's happening regarding Cyprus today is the tipping point future
historians will point to as the beginning of the end of the EU and hence the
rest of the old economic order. But it could be.
Skepticism from the
mainstream does not prove that Doug is right about the global economy exiting
the "eye of the storm" this year, but it's a great contrarian
indicator.
What is absolutely clear
is that the extreme measures the ECB has just shown it is willing to take are
solid evidence that we are right about just how shaky things are – just how
close to the crumbling edge of the abyss the whole world is.
Even if the direct,
overnight theft of Cypriot bank deposits does not spark a bank run across
Europe, it won't change this fact. The ECB will certainly admonish us all to "pay
no attention to the man behind the curtain," but we've all seen the
truth.
The question to ask is
not, "How can we be certain?" That one's easy to answer: we can't
be. The question to ask is, "What do I risk if this is it and I fail to
prepare for the hell that's coming two steps behind?"
To Doug, me, and all of
us here at Casey Research, the answer to that is obvious: if we bet on the
resumption of the economic storm and the so-called recovery continues, we'll
miss some opportunities and maybe lose some money on investments that don't
work out – but if we don't make that bet and the economy does come unglued,
we will suffer heavy losses.
If – Doug would say
"when" – the wheels fall off the economic "recovery," the
vast majority of people will see a substantial reduction in their standard of
living – and many will simply be wiped out. We don't plan to be among them.
What to Do?
You've heard most Casey
recommendations before, at least in general terms, but that doesn't make them
any less true or important now... indeed, just the opposite, if the
inevitable has now become imminent.
- Liquidate: Sell or dispose of any
assets you have that might have been favored by the old economy, but are
unlikely to hold value or generate income in the new one. That includes
speculative real estate holdings in formerly hot markets and stocks in
formerly invulnerable blue-chip companies. You might even sell your
house, if you can, and rent instead. You should lighten your load in
every way possible – even household junk filling your basement and attic
– the storage unit you may be renting – anything you don't truly need. Turn it
into cash.
- Consolidate: Cut your expenses to the
bone and consolidate your assets into things that will hold value come
hell or high water. The single best asset class for doing this is the
precious metals: gold and silver. A substantial amount should be in cash
form (coins). This is where you put your savings. Productive (not
speculative) real estate is also good, but make sure it's in a
jurisdiction that is unlikely to see you as a victim to be fleeced for
the public good. As Doug constantly reminds us, a critical element is getting
a major portion of your assets offshore.
- Speculate. With governments around the
world on the verge of insolvency, most of them printing money by the
helicopter-load, there are predictable economic consequences. Massive
bubbles will be created, such as the one we see ahead in precious
metals, and other bubbles will pop, like the collapse of more major
corporations. There are no safe bets in such an
environment (even gold can be confiscated if you leave it all in a
jurisdiction that turns to stealing, as the EU has just shown it's
willing to do), so you're better off speculating on a variety of bets
placed on these trends. It's possible in such volatile times to make a
lot of money – this is the raison d'être of most of our
publications. How to profit from the coming mania in gold and silver is
the main focus of our BIG GOLD newsletter, and how to shoot for spectacular returns is our goal
in the International Speculator.
- Create: Despite all of the above,
we are not apocalyptic, but actually quite optimistic, about the long
term. In the coming years, the world is likely to change as radically as
it did entering the industrial revolution – major change will impact
everything: economy, politics, technology, demographics, social customs
and mores, the military. Everything. This is a good time to look around
and ask yourself what goods and services you
can provide that people will need in the future. What worked during the
late Long Boom won't work in the future – in order to create, you're
going to have to think creatively, but it will be worth it. Life today
is immeasurably richer than it was a thousand years ago, and in 100
years it will be better by a factor beyond our ability to comprehend.
Maybe even 50. And in just 25, it will be beyond most people's belief. Become a forward
thinker, or become
road kill.
Personally, I just sold
my sports car and consolidated down to one vehicle. We really didn't need
two, and I'm using some of the proceeds to speculate on an emerging gold
producer that has the potential to return ten times my investment. I plan to
speculate on more great companies in the months ahead, especially if the
market goes into a true panic, which it has not yet. Saving in gold has long
been my practice, so that's nothing new for me. As for the future, I plan two
things: A) invest in
technologies and
companies I believe have great potential, starting with some of those covered
by the Casey technology division; and B) work hard to keep myself from
becoming obsolete.
Do not underestimate the
importance of the latter; there is medical technology right around the corner
that could drastically prolong the human lifespan. Everyone not at death's
door should have at least a 25-, if not 50-year financial plan. This, in my
view, makes the addition of our new income letter, Miller's Money Forever, as timely as it is important.
How to Become a "Downturn Millionaire"
It's the
"speculate" component of Doug's "liquidate, consolidate,
speculate, and create' formula that most people have the most trouble with.
We've said many times
that the essence of speculation is to buy low and sell high. The best way to
do that is to buy when there's blood in the streets – which is what is
shaping up in the market now. Despite persistently high metals prices,
there's panic in the air, and few are willing to buy. It's at times like
these, when "everyone" has given up on a commodity, sector, or
asset class that cannot dry up and blow away – like metals
and mining – that you can buy at "stupid-cheap
prices."
We have documented and
commented upon the weakening market for metals and mining stocks,
particularly gold stocks, in these dispatches for some time now. We've
pointed out the widening gap between the value the market is giving to good
companies and the commodities that underlie them, such as gold, which has
traded sideways, not down, over the last year – and at a price point
previously deemed unsustainably high. It is clear to us that a potentially
life-changing buying opportunity is shaping up today, and it may just be the
Cyprus black swan that turns out to be the tipping point in our favor.
Now, no one can time a
market bottom, except by accident. But when you can buy something that has
to go up when it’s selling cheap, you can make a lot of money – if you have
the patience to endure until it does go up. In the case of mining stocks
today, we don't think that patience will be required for a long time, but it
will have to hold up to extreme volatility in the near term.
This is, frankly, not a
viable plan for everyone. People prone to panic when stock in a good company
drops 30% for no reason often end up inverting the speculator's formula,
buying high and selling low. But for those who have the discipline to stand
by their judgment of what has value, regardless of what the rest of the
market is saying, it's times like these that create
the most leveraged buying opportunities – opportunities that literally set
the foundation for accumulating serious wealth.
The nature of success and
failure in speculation: discipline and perseverance matter much more than
strength or speed. It's necessary, but not sufficient, to be right – you have
to stay the course.
Key point: There's a
clear and present opportunity we see in the Cyprus crisis, which has already
given the price of gold a shot in the arm. However it turns out, the cat is
out of the bag as regards how the EU regards peoples' savings, and that could
lead to the next leg up in the gold market. If the whole system does topple
over the edge of the abyss, it should spark a gold mania such as have never
been seen before, not even during the famous spike of 1980.
In response to this
opportunity, the Casey Brain Trust has created a webinar explaining the
details on what steps to take to profit from the current downturn. Whatever
subsequent actions are taken or not taken, I strongly encourage all our
readers to tune in to this valuable – and free – online video event, titled Downturn Millionaires. It could easily turn out to be
the most valuable event you'll attend all year.
And whatever you do,
don't forget: liquidate, consolidate, speculate – and create!
Sincerely,
Louis James
Gold and Silver HEADLINES
Arizona
Could Soon Approve Gold and Silver as Legal Tender (Mineweb)
Arizona may become the
second US state (after Utah) to recognize gold and silver as legal tender. If
SB1439 gets approved by the Arizona House and signed into law by the
governor, gold and silver will acquire legal-tender status, defined by the
state as a mode of paying debts and taxes.
"The measure also
states that any coin or bullion that has gold or silver content and is issued
by the United States Government can be defined as legal tender. However, no
one can be compelled to accept coin or bullion containing gold or silver. The
measure would also mandate that coin or bullion containing gold or silver
issued by the U.S. Government cannot be taxed as property since it is to be
considered money,'” Mineweb reports.
This issue has been under
consideration in three other states (Virginia, South Dakota, and Indiana),
but none have yet approved the suggested measures. As straws in the wind,
however, these are quite telling.
Massive
Increase in Chinese Gold Reserves Unlikely (Mineweb)
Vice Governor of the
People's Bank of China (PBOC) Yi Gang has said that the country's gold
reserves currently stand at roughly 33.9 million troy ounces, and that there
is no intention to increase them significantly in the future. "More gold
is always an option, but that requires profound judgment," Yi Gang said.
We think it's more important to look at what
China does than
listen to what its leaders say.
Why does it matter?
Because, compared with China's US$3.3-trillion foreign exchange reserves, the
size of the whole global gold market is fairly miniscule. An increase in
China's gold reserves would signal that the PBOC is bullish on gold and
provide reliable support for the metal's price.
Earthquakes
Make Gold Veins in an Instant (Nature)
A new study states that
gold deposits can be created almost instantaneously during earthquakes — possibly
within a few tenths of a second. What appears to happen is that a rapid
depressurization allows the normally high-pressure conditions deep inside to
become close to the surface pressure. When hot, mineral-laden water
experiences this sort of pressure drop, the water vaporizes almost instantly,
leaving the minerals to crystallize in a process engineers call "flash
deposition."
"The process takes
place along 'fault jogs' — sideways zigzag cracks that connect the main fault
lines in rock” said first author Dion Weatherley, a
seismologist at the University of Queensland in Brisbane, Australia.
Since fault systems with
lots of "jogs" may host gold, the study suggests that miners might
be able to use remote sensing techniques to find new gold deposits in deeply
buried rocks where fault jogs are common.
The idea of instant
deposition is exciting, but seems unlikely to change mineral exploration
much; geologists already look for these sort of jogs
– dilation zones – and recognize that changes in temperature and pressure
cause dissolved minerals to settle out of fluids moving through spaces
created by faulting. Still, it's always good to see our understanding
increase.
BIG GOLD
- Lots
of BIG GOLD news this week – check out the latest on your
favorite companies, along with our comments, on the BIG GOLD portfolio page.
