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 pay-off 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 pseudo-science 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.
Last night over yet
another dinner, 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.
(I wanted to make a quick
mention of Bill Bonner's newest publication. As many of you know, for years
he was the lead writer for the hugely successful free e-letter, The Daily
Reckoning. Recently, he has turned his considerable writing skills to a
new letter, Diary of a Rogue Economist… learn more here.)
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 on image 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 on image to
enlarge)
(For the record, EverBank World Markets offers what may be the only
FDIC-insured world currency accounts and certificates of deposit, allowing
you to diversify your currency holdings extremely efficiently. For more
information, click here.)
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 Millionaire
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.
I understand that the
program will go live on the Casey Research site on April 8. At this point, I
don't have much more in the way of details, but do know that because of the
importance of the topic, we are going to make it available to everyone to
watch for free.
Watch your mailbox for
more on Downturn Millionaires, filmed on location here at La
Estancia de Cafayate. I promise you, it will be
worth your time.
And with that, I want to
move on to an article I received yesterday from Dennis Miller, editor of Miller's Money Forever on another bit of public
information: that banks are safe.
Just Whose Money Is It Anyway?
By Dennis Miller
At some point in our
life, I am sure most of us have had the experience where we start to
accumulate our own personal small pile of money. Whether our money was a
birthday gift, came from paper routes or baby-sitting, our little cash pile
was burning a hole in our pocket. Our elders decided it was time for us to
march down to the bank and open up our very own savings account. They told us
it was for safe keeping. After all, if we kept our money at home, we could
get robbed. In a bank, it is safe and insured by the government.
Part of those early life
experiences was the concept of putting away our money, in a safe
place, and accumulating wealth that we would need down the road. The contract
was implied. It was our money and safely protected in the bank.
Our confidence was shaken
when the first TARP bill was passed to bail out several banks deemed
"too big to fail." Indeed, the government kept its promise; our
money is safe.
Recently many of us have
read articles about Cyprus, where the European Union has decided to
confiscate money in people's bank accounts in the form of a tax. Here is what
our own Marin Katusa said about it in the Casey Daily Dispatch, on Tuesday, March 19.
For those with bank
accounts in the Mediterranean island of Cyprus, this past weekend was a
disastrous one. In what is an unprecedented move in the Eurozone, Cyprus is
planning to impose a tax on bank accounts as part of an agreement to be
bailed out by the European Union.
Those who have under 100,000 euros in their accounts will be taxed 6.75%,
while those above that figure will be taxed almost 10%.
Technically, the
depositors do not lose the money, but would gain shares in banks guaranteed
by future natural-gas revenues – not a very good guarantee at all, given how
incompetent the Cyprus government has been to date.
People are outraged:
wouldn't you be, if you were to lose 10% of all your bank savings because
your government had to be bailed out by foreigners?
The banks were closed,
and at the time this is being written, nothing has been finalized. In the
meantime, citizens have hit the ATM machines and emptied them out in an
effort to get as much money out of the banks as possible. Regardless of the
outcome, this should send up yet another red flag for all Americans, even if
this is happening on the other side of the world.
The underlying problem is
worldwide. For decades, politicians have been spending more money than their
governments have taken in, and the bills are piling up at an ever-increasing
rate. These bills are now coming due, and basically they have reached their
credit limit. As a result, central banks are simply printing money to pay the
bills. Governments are desperate to generate revenue because they know the
citizens will riot and throw them out of office if they try to cut social
spending. The riots we are seeing in Europe are certainly a preview of things
to come. They would rather rob from the working class than face the real
spending issues that need to be addressed.
Why Should I Be Worried?
A friend recently used an
interesting analogy to try to explain the Cyprus situation. He said, suppose
the state of North Dakota could not pay its bills and the federal government
got tired of bailing them out. Finally they said, "Enough is
enough," and simply decided to impose a tax on all money in North Dakota
bank accounts. If you don't live in North Dakota, what's the big deal?
Regular Casey readers
have enjoyed articles from Doug Casey, David Galland and others about their
adventures in Argentina and how they are setting up a new homestead in the
beautiful wine country. At the same time, we also read International Man
and other publications that encourage us to look at other places in the
world. While that is nice, one thing some folks don't realize is this: While
you may want to exit the country, you are still a US citizen and all your
income is taxable, no matter where in the world you live. Should you decide
to give up your citizenship, you may do so; however, you must pay an exit
tax.
There are many websites
that explain the exit tax – here's one
of them. Here is
a general summary:
The exit tax was
modified significantly in 2008 and now presents a serious problem for
potential expatriates whose net worth exceeds $2 million (or whose annual tax
liability exceeds prescribed thresholds) as the tax liability is triggered by
a mark-to-market artificial tax event.
You are deemed to
have sold all your property, yes even personal property, and liquidated in
full all retirement plans – all on the day before the legal expatriating
event.
My concern is not the
fine-print details of the law, but rather the concept behind it. Just whose
money is it anyway? Is it our money that we earned through our hard work and
efforts, or are we just temporary custodians of the government's money?
It Couldn't Happen Here in the US, Could It?
I'm sure most of us
recall the discussions taking place in 2010 where the government was
investigating the possibility of requiring IRAs to hold a certain amount of
US Treasury debt. Here is one excerpt:
Bloomberg reported
Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant
Treasury Mark Iwry are planning to stage a public comment period before
implementing regulations that would require private investors to structure
IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed
government annuity.
CNBC's Rick Santelli
broadcast the rumor the same day from the trading floor during CNBC's
"Power Lunch" show.
Spokesmen from both
the U.S. Treasury and Department of Labor confirmed to WND that the federal
agencies are about to enter a pre-regulation public comment phase on the
proposed rule change.
So tell me again. The
government of Cyprus wants to take money out of people's bank accounts
without their consent to pay their bills. The money will be replaced with
risky shares in banks guaranteed by future natural-gas revenues. Our Marin
Katusa says it is a very poor guarantee given how incompetent the government
has been to date.
Our government, also in
debt, has already discussed tapping into everyone's retirement accounts,
taking out our (risky) investments in some of the finest, best-run businesses
in the world and replacing a portion of them with government-backed IOUs.
Perhaps we could also add the same comment, "… it is a very poor guarantee
given how incompetent the government has been to date."
At the time this is
written, this is purely in the discussion stage and nothing has been decided.
There has also been no meaningful discussion about reducing spending. That
means we will soon be faced with another crisis down the road. Should the
politicians get away with this theft, it will continue. I'm sure we have all
heard that once you start stealing, it gets easier each successive time. I
recall one hardened criminal on a TV show go so far as to say, "You
steal often enough, the guilt goes away." I
doubt that politicians have much of a problem with guilt.
It is no wonder that on
Monday, March 18 in the Casey Daily Dispatch, the metals team
reported:
"…..while ETF
holdings are declining, the physical market is seeing robust support. In
fact, the US Mint – the bellwether for measuring demand of physical gold in
the Western world – reports that sales of gold and silver coins are soaring.
We Have Come a Long Way, Baby
How many more clues do we
need? When we signed up for Social Security, receiving a check was no longer
an option, it had to be direct deposited. What the government puts in, they
can just as easily take out.
It sure looks to me like
the lessons of our youth have now become totally reversed. You put your money
in the bank because it was safe, you didn't want to get robbed. Additionally,
it was protected by the federal government. Now the banks are no longer safe,
and we are concerned about being robbed by the federal government.
I suspect sales of PVC
pipe are also soaring. If you buy the right size, you can store a whole lot
of gold and silver coins in them. Are we as a nation reverting to the days of
old Europe where we must hide our wealth from the taxman?
We better be very
concerned about the events in Cyprus, regardless of how they turn out. If our
politicians think they can continue to rob the working class in new and
creative ways, they certainly will.
Friday Funnies
This first entry is
technically not funny, in fact, it is quite unfunny. But I sure found it
interesting that a poster commissioned by the European Union, designed as a
politically correct call for unity, dropped the old hammer and sickle at the
top of the star. And, yes, the poster is
real and not some
Internet hoax.
Sequestration on Saturday Night Live
A really funny skit – here’s the link.
Funny Commercial
on the Value of Paper
Thanks to fellow
Estanciero Pete K for sending this along. Here's
the link.
Book Review
Sticking with our theme
for today, I want to highly recommend a book to you. It's titled Kill
Anything That Moves: The Real American War in Vietnam by Nick Turse.
This book is one of those
rare pieces of work with the power to completely alter your perception of a
historical event… in this case, the Vietnam War. And, in doing so, alter your
perception of the much heralded US military machine.
The author, a real
reporter who left no stone unturned in writing his book – a rare commodity
these days – dug through a mountain of previously classified investigative
reports from US military and various government archives, then traveled
extensively in Vietnam to confirm his findings: that the My Lai massacre in
which between 350 and 500 unarmed civilians were slaughtered by a company of
US soldiers wasn't the exception but the norm.
I have to warn you; the
book is extremely hard-hitting and even painful for an American to read. You
simply don't want to believe that our government would actively support the
scorched-earth, "kill anything that moves" actions detailed in the
book – but the depth of the research leaves little doubt at the truth of the
matter. And the truth is that, encouraged by the US military command at the
time, the US soldiers regularly acted like the savages you'll read about in
hell holes like the Congo, or the Japanese in the rape of Nanking.
A friend of mine who
served in Vietnam rationalized the behavior by saying that it was not unusual
for US patrols to spend a couple of weeks crawling through the jungle without
seeing a single armed combatant, but still suffering 10% casualties… leading
to the sort of anger and frustration that resulted in entire villages being
wiped out, even though the villagers were all old men, women and children.
While some patriots will
be offended by the book, or the contention that the US military command
condoned the barbarism, it is hard to square up that only one person, Second
Lt. William Calley, a platoon leader during the murder spree in My Lai, was
convicted. And even though he was given a life sentence, he served only three
and a half years under house arrest. I think the proper term for that sort of
sentence is "slap on the wrist."
Tough as it is, the book
is very much worth a read as it puts the Fourth Generation Warfare (4G) now
dominating global conflicts in clear perspective… unable to pin down and kill
the elusive enemy, the brunt of the pain will always fall on the civilians.
It will also disabuse you of any delusions you may have about the valor of
war, an entirely healthy exercise, in my view.
For those of you who
reflexively support US military adventures, please don't waste your time or
mine sending me angry emails about this posting. Instead, do yourself a favor
and read the book.
And Finally…
Attend the World
MoneyShow Vancouver FREE as a Guest of Casey Research
Join Casey Research
Senior Market Strategist Marin Katusa at The World MoneyShow in Vancouver,
April 18-19. This is Western Canada's most popular gathering of resource
companies and investors, and a great place to meet the senior executives of
our recommended resource companies. Marin Katusa will be sharing his Energy
2013 Forecast and updating his favorite energy investments today. The
conference is free, but advance registration is required. Here's a link to do
just that.
Marin will also be
appearing at the Las Vegas MoneyShow, May 13-16, 2013, at Caesars Palace. You can
access the details by clicking here.
And with that, I will
sign off for the week, in all probability now stumbling upstairs for a siesta
before dragging my bedraggled self down to the Athletic Club for a massage
(here in the Argentine outback, an excellent hour-long massage only costs
between $30 and $40).
Until next time, thanks
for reading and for being a subscriber to a Casey Research publication.
David Galland
Managing Director
Casey Research
