Must-Read Book of 2014

Dear Reader,

We’re going to take a break this week from our usual fare of industry insight for metals and mining investors, pulling back for a look at the big picture. The biggest picture, in fact: the current human condition, within the context of all of history—and even prehistory.

This is the subject of our friend and fellow contrarian investor Bill Bonner’s new book, Hormegeddon.

The cryptic title, I must admit, is my second greatest disagreement with what I think is clearly one of the best and most important books written in many years.

It’s a clever combination of hormesis (the biological phenomenon of small doses of something being good for an organism while large doses are damaging or fatal) and Armageddon. The meaning being that our civilization suffers from too much of many good things and is headed for a catastrophic correction, if not complete collapse.

Whether one agrees with that conclusion or not, it certainly poses a question every thinking person should consider, and then plan to act accordingly—which dovetails perfectly with our views of gold for prudence and gold stocks for speculative profits.

But there’s an immediate benefit to reading the book as well: despite the rather sobering—if not horrifying—line of reasoning, the text is brilliant and very, very funny. If H. L. Mencken has an heir in our day, it may well be Bill Bonner.

Long ago, a friend suggested that I should start a daily email letter and build a huge mailing list, “like Bill Bonner’s Daily Reckoning.” My reply was that while I might have plenty to say, and have great confidence in my analytical skills and ability to deliver valuable information, I didn’t think I could deliver entertaining copy on a daily basis, as Bill has done for so many years.

In Hormegeddon, Bill continues that amazing track record, delivering page after page of informed, insightful, frequently challenging, and very humorous writing.

Let me share a few of my favorites:

Bonner’s Law: In the hands of economists, the more precise the number, the bigger the lie.

But there are those who believe they can make the right decision more right, or the poet more poetic. And while many of these snake oil salesmen content themselves with a quick buck and the next train out of town, some of them go for the long con. These are the central planners.

Constructing a public policy out of public thinking is like building a skyscraper out of marshmallows. The higher you go, the squishier it gets. Because the information blocks themselves are not solid. Instead, they are combinations of theory, interpretation, guesswork, spin, hunch and prejudice.

The trouble with The Economist, The Financial Times, the US Congress and most mainstream economists is not that they don’t know what is going on, but that they don’t want to know. It would be counterproductive. Nobody gets elected by promising to do nothing. Nobody gets a Nobel Prize for letting the chips fall where they may. Nobody attracts readers or speaking fees by telling the world there is nothing that can be done. Instead, they meddle. They plan. They tinker. Usually, the economy is robust enough to thrive despite their efforts. But not always.

Imagine that Warren Buffett moves to a city with 50,000 starving, penniless beggars. This is what economists would say about that city: “Stop whining...the average person in the city is a millionaire.”

In other words, there was so much fudge in the GDP figures that you could get tooth decay just looking at them.

Enough. I don’t want to spoil your fun.

It’s not all pointed levity, of course; there are charts and tables and many cogent arguments. Among the most striking of these was a chart on page 256, showing Zero Hour—the point beyond which every incremental dollar of US debt has no impact on GDP. That’s due to arrive next year. (Maybe the Mayans just missed it by three years.)

And Bill’s bottom line, while agreeing 100% with Doug Casey’s view, is anything but funny:

A blow-up in the US money will be felt around the globe. It will probably be the biggest public policy disaster of our lifetimes. What exactly will happen, and when it will happen, we will have to wait to find out. But it will be bad, that much is certain. We will hit rock bottom.

What about my other disagreement, besides the inscrutable title? With all due respect, I think Bill misjudges the economic (never mind social) impact of the Internet.

The Internet. A time waster, like television. Not a wealth booster, like the internal combustion engine.

What data supports this conclusion? Lackluster GDP growth since the Internet began its explosive growth. Aside from Bill’s own arguments that GDP numbers are meaningless, I would say that real economic growth, whatever it is, would have been much, much less than it has been since the advent of the Internet, were it not for this technology and the game-changing efficiencies it has, is, and will bring.

Which is not to say that the signal-to-noise ratio is not distressingly high, which I think is his real point.

At any rate, if we do differ on this matter, it is a small thing compared to the long-overdue and necessarily merciless analysis of the current human condition Bill has given us.

It’s a bonus that—at least for independent thinkers—the book is as fun as it is important.

I, at least, found it much more gripping than any novel I’ve read for years. Frankly, I had only intended to glance at it, but it sucked me right in.

So I do highly recommend Hormegeddon to all our readers. Just be sure you’re sitting in a comfortable chair, maybe with a drink and a snack at hand.

And fear not: We’ll be back next week with more coverage and analysis of metals and mining investments today. This week’s message is that Bill Bonner’s book provides ample support for our investment strategies.

Sincerely,

Louis James
Senior Metals Investment Strategist
Casey Research

Gold and Silver HEADLINES

India Gold Smuggling Explodes YoY (Mineweb)

According to figures released by the Indian government, it intercepted $44 million worth of smuggled gold at the country’s airports between April and June. That compares with $82 million for the entire year ending March 31.

Last year, between April and July, the Mumbai airport customs had seized 61.46 kilograms gold, while this year it seized 403.52 kilograms. Customs officials at the Chennai airport in the South also reported seizing much more gold than last year.

Owing to the high import duty imposed last year on gold by the government to bring down the nation’s fiscal deficit, it’s clear that gold smuggling is rampant across the country. Imagine the endless flows of the yellow metal that do make their way across the border unhindered and your head may spin.

Did the Indian government really think they could stop a thousand-year tradition?

China Allows 3 More Banks to Import Gold, Sources Say (Reuters)

China is said to have allowed three more banks, including a foreign lender, to import gold, sources with direct knowledge of the matter told Reuters. The move comes as the world’s top gold buyer gears up for its strongest effort yet to gain pricing power of the metal.

This brings the number of firms allowed to import gold into China to 15, and comes ahead of the launch in September of a new international bullion exchange in Shanghai, with which China hopes to become a price-discovery center.

China and other Asian gold trading centers such as Singapore are calling for more localized pricing of the precious metal as they seek alternatives to the so-called London fix, the global benchmark for spot gold prices, which is under investigation by regulators on suspicion that it may have been manipulated.

Jeff outlined a couple weeks ago what other steps the Chinese might be undertaking to build up their gold reserves.

Russia Leading Central Bank Gold Buyer, But China—Who Knows? (Mineweb)

Based on World Gold Council statistics as published in its quarterly Gold Demand Trends reports, central banks have been buying at a higher rate this year than last, with a reported 240 tonnes purchased in the first half vs. the 180 tonnes the same period a year ago. One has to bear in mind that these figures exclude any purchases China may have made to boost reserves.

The biggest recent buyer, based on published data, has been the Russian Federation, reported to have increased its holdings by a further 9.33 tonnes, following an 18.6 tonne increase in June. This pushes its total gold holdings above 1,100 tonnes. Russia now has the world’s fourth-largest national official holdings (excluding the IMF), yet it still falls substantially behind the US, Germany, Italy, and France.

We can’t help but wonder… how much gold do the Chinese own now?

Recent News in International Speculator and BIG GOLD—Key Updates for Subscribers

International Speculator

• One of our favorite gold exploration teams reported some early-stage drill results, which are extremely encouraging since they’re in one of several targets located in a major mining area of Quebec.

• This Canadian-based producer just announced some intriguing quarterly results, the importance of which the market has not yet grasped, giving us a clear opportunity. With this company, however, high-margin production takes a backseat to the discovery potential—if just a couple of the company’s 15 exploration targets work out, it should take these shares to a whole new level.

BIG GOLD

• A number of BG companies have released quarterly reports—stay on top of your stocks by checking the latest important news and our comments.