Dear Reader,

With a poor jobs report out last Friday only adding 54,000 to the nonfarm payroll, job growth seems to be stalling again. With so many government programs attempting to revive the economy, what’s holding it back?

Of course, many things are impeding our progress, but a country typically doesn’t need a major overhaul to pull itself out of a recession. Yes, the national debt is huge, and yes, the free market is getting weaker. But those are more long-term problems; the U.S. Treasury isn’t defaulting tomorrow. Unfortunately, our politicians are well aware of this fact and continue to push back necessary reforms.

Many have blamed the bailouts, the stimulus packages, and other extravagant expenditures for the lackluster recovery. However, the bailouts are in the past. With the exception of the financial services sector, the bailouts of the past do not guide business decisions for the future.

For the economy to recover, companies and investors will need some level of certainty about the future. A firm’s expansion plans or major equipment purchases require a relatively stable environment to make sense. A corporation can’t start a five-year project when it can’t even predict economic conditions six months from now. With thousands of companies facing the same obstacles, overall economic expansion is hindered.

In my opinion, there are three factors that contribute most to the uncertainty:

1. The Federal Reserve’s near-zero rate policy – Bernanke pushed his line of “low rates for an extended period of time” with the intention of minimizing uncertainty. His game plan was pretty simple: promise low and stable rates; create an economic recovery; and raise rates when the economy is stronger. There’s just one problem now: the economy never recovered, and rates must soon rise.

Unfortunately for the economy, the Fed’s future plans are far from certain. A part of the market foresees QE3 while other participants debate higher rates. These polar opposite positions say much about the current level of certainty. To make matters worse, the effects of either policy are difficult to predict. Will higher rates crash the market? Would QE3 boost the stock market again, or will the world lose confidence in America? It’s all uncertainty, uncertainty, uncertainty.

2. The 2012 U.S. elections – There’s a real danger of a worse president coming to power soon – and I don’t just mean a dimwit neocon winning. After the election, we might get Obama 2.0 – a far worse version than we’ve had for his first four years. Without an election on the 2016 horizon, Obama’s policies may turn more radical. In the past four years, he actually hasn’t been that horrible for the business environment. Outside the financial industry, Obama’s greatest transgression has been overspending, not overregulating.

Think about it. Obama has compromised on nearly every major bill. What happened to cap and trade; the public option; the Employee Free Choice Act; and the Bush tax cuts? Obama typically starts out with a horrible policy and compromises to a bad policy. For his reelection prospects, Obama has to make concessions. But if he wins in 2012, some of his more radical plans and policies may come back with a force. And the timing couldn’t be worse. The economy needs the complete opposite of his original slogan, “change.” It needs a period of stability and predictable future rules and regulations.

One can’t make change without rocking the boat. And currently, the ship is already taking on water.

3. The financial industry – Like it or not, the financial industry is at the center of the U.S. economy. Unfortunately, everything in point number two regarding Obama’s light hand on regulation doesn’t apply to the financial industry. From credit cards to debit card fees, to mortgages and proprietary trading and derivatives, almost every aspect of the financial industry has become a target for government regulation.

Furthermore, it’s not just the size of the rulebook (the Dodd-Frank Act alone is 2,319 pages long). New rules are constantly in the works. It has been three years since the crisis and additional regulations are still being written. In this environment, it’s impossible for banks to plan for the future.

I know that this won’t the most popular sentence in my writing career, but U.S. bank CEOs have one of the toughest jobs in America right now. How can these banks possibly plan for the future? If the banks expand derivatives, they will face additional regulation. Give out more credit cards, and there’s more regulation risk. If one lends too little money, the bank is considered a bad guy. If one lends too much, the bank is considered reckless. The financial industry has become a labyrinth of regulations with a government minotaur at every turn.

The U.S. government spent billions to “save the banks” and then essentially regulated the system to death. Once again, we don’t necessarily need deregulation. However, the rules need to be clear and complete. We can’t constantly rewrite the rules and add new pages every year. That creates extreme uncertainty and a ripple effect throughout the economy.

I don’t want to write a book here; so I’ll pass it along to Doug Hornig with his last installment of the Steve Austin technology article. Then, I’ll briefly comment on interest-rate decisions in the week ahead.

Steve Austin Revisited – Part III

By Doug Hornig

In our final installment of this series, we examine artificial hearts and exoskeletons and ponder what’s next in Steve-Austin-Land. If you want to read the first two parts in this series, here is Part I and here is Part II.

The Heart of the Matter

Heart transplants have become relatively commonplace since Dr. Christiaan Barnard performed the first one in South Africa 43 years ago, and they work pretty well these days. Average five-year, male/female survival rate is now 73.1/67.4%. The longest-lived recipient lasted 31 years before succumbing to cancer, and many remain alive 20 or more years after receiving a donated heart.

All well and good. But the problem is of course that demand always far outstrips supply, and the result is a waiting list of over 3,000 individuals in the U.S. alone. Thus the invention of an artificial heart – one that is functional, self-contained, tolerated by the body, and long-lasting – remains one of medicine’s holy grails.

We haven’t gotten there yet. At the moment, artificial hearts now are used primarily as a bridge to transplants. However, that may change in the very near future. Several different researchers are racing toward clinical trials of new devices, which could commence as soon as this year.

While we await the arrival of a self-contained bionic heart, though, there is a possible alternative. In 2010, the FDA approved the use of the SynCardia Total Artificial Heart. The SynCardia is a descendant of one of the original designs, the Jarvik 7. Over the years, advances in miniaturization have allowed the SynCardia to be controlled by an external device that has shrunk from a 400-pound behemoth to a 13-pound backpack. And in May, the first patient went home with one. You can learn about his story here.

It’s pricey, at about $125,000 for the unit and $18,000 per year for maintenance; it’s still a cumbersome machine; and the user’s body is still tethered to an external source of life. But it’s a milestone in the same way that the vacuum tube eventually – and inevitably – begat the microchip.

The Ultimate Warrior

As everyone now knows, robotics is playing an ever-increasing role in modern warfare. Smart bombs guide themselves to precise targets, while drones controlled from Virginia attack al-Qaeda sites in Pakistan. Perhaps someday, whole battles will be fought with no blood spilled, as combatants vie to see who has the superior machines.

Until that day arrives (if it ever does), the basic unit of military currency is still the solitary soldier. But the guy in fatigues and combat helmet is a distant memory. Today’s fighter is decked out with an array of sophisticated equipment that would have left the original G.I. Joe scratching his head. And there’s more to come. Exoskeletons are on the way.

An exoskeleton is just what it sounds like – a set of metal bones and joints worn on the outside of the body. (If you’re thinking Iron Man here, that would be the advanced version.) A lot of companies are working on them, and they aren’t just for soldiering.

One of the things they can do is get paraplegics out of their chairs and walking, as you can see in this October 2010 demonstration, where California’s Berkeley Bionics unveiled its eLEGS exoskeleton (the system was later recognized as one of Time magazine’s best inventions of 2010):

eLEGS is worn over the clothing (including the shoes), and the wheelchair-bound can reportedly get in and out of the contraption within one to two minutes. Once standing, the onboard computer employs sensors to track the users’ gestures. It then figures out what the users intend to do and provides the proper level of assistance.

According to Berkeley Bionics, a limited release in rehab clinics is scheduled for the second half of this year. But the ultimate goal is to make the product available for home users, so they can don it in the morning and wear it all day.

Honda is preparing to introduce a somewhat simpler version, designed to help those who aren’t paralyzed but could use some assistance in getting around and to relieve stress on workers whose jobs require long periods of standing or crouching. You can view it here.

Then there’s HAL. No, this is not a reference to the computer that wouldn’t open the pod bay door in 2001: A Space Odyssey (although its developer, a dedicated science fiction fan, may well have intended the association). This HAL – short for Hybrid Assistive Limb – is an exoskeleton. Its job is not to restore normalcy to the disabled, but to augment the wearer’s physical capabilities. Here’s HAL in action.

Okay, it’s a little difficult to envision the civilian applications for HAL. Yes, the test subject can do squats with 40 kg (88 lb.) of rice in his arms. So a worker could move heavy objects around with no strain to his back. But isn’t that what we already have forklifts for? And is anyone interested in seeing Olympic weightlifting marks fall as guys in HAL suits hit the mats?

The military, though, is another matter. Commanders have been wishing for a super-soldier for a long time. Soon they may have one. Check out the real-life Iron Man that Raytheon is working on for the Pentagon, or competitor Lockheed Martin’s HULC.

Give someone the ability to carry an entire arsenal of armaments with no loss of mobility, bulletproof the suit, refine the powerpack, and now you’ve got a real battlefield innovation.

What’s Next?

In truth, we’ve only scratched the surface of what’s going on in Steve-Austin-Land these days. Innovations are coming so fast and furiously that people with electronically enhanced body parts may well become the norm within the lifetime of many of our readers.

That leaves the final frontier: the human mind. Is it possible to build machines that truly think, that undeniably possess what we regard as consciousness? And, to flip the question around, is it possible to give the biological brain the computational power of a supercomputer?

The answers may surprise you.

All of the technology detailed in this series is very mainstream – either here now or planned in the near future. But the mind is still largely uncharted territory, where monsters may yet lie. Out there, venturing from the mainstream to the periphery, the ideas get wild and woolly indeed. We’ll tackle this topic in the future, so stay tuned.

[Exciting developments in technology can make investing seem easy; but risk and uncertainty lurk throughout the sector. Let Alex Daley and his team help you navigate it successfully. A trial subscription to Casey Extraordinary Technology is risk-free for three months. Learn more here.]

The Week Ahead in Interest Rates

By Vedran Vuk

The week ahead looks pretty exciting for interest rates with four decisions coming: Australia on Tuesday; New Zealand on Wednesday; and the eurozone and England on Thursday. Sure, Australia and New Zealand may not seem significant, but any rate hike adds more pressure on the Fed to do the same. In particular, the Australian dollar – a favorite of the carry trade – pressures low-rate currencies.

Of course, the ECB’s rate decision will be most significant. Trichet again has an opportunity to take a lead in the world. Unfortunately, he probably won’t act and will leave the rate unchanged. Though the euro has made a tiny recovery, I don’t think that it will hold. In the next month, I expect volatility within a controlled range until the Fed makes clearer announcements about the future – unless the ECB does actually raise rates.

Additional Links and Reads

Tailors Smart as Wool Prices Double (Financial Times)

Here’s an off-the-radar commodity that’s seen its price doubling: wool. However, I don’t think that we can blame the Fed for this one as supply imbalances are driving the action. The article notes that wool prices have spiked, but have not been passed on to the consumer yet. So if you’ve been putting off the purchase of a new suit, now is the time.

Americans Divided on Taxing the Rich to Redistribute Wealth (Gallup)

This Gallup poll on redistribution has stayed practically the same over the years. If you’ve seen it before, the poll doesn’t add anything new. What I found more interesting and disturbing was a question toward the very end:

First of all, this question is completely absurd. How does one determine the “right amount” of rich people? I mean this very seriously. What is the argument for 1.5 million rich people versus 2.5 million rich people? If the question asked, “Should wealth be more evenly distributed?” then that’s OK. It’s a very generalized opinion. But to discuss a specific amount is ridiculous.

Note that a frightening 31% said that there are “too many” rich people. Yes, getting rid of the wealthy would be just great for the American economy – surely this is the roadmap to prosperity.

Furthermore, what does it actually mean to claim there are too many rich people? Should those who started successful businesses and earned their money be kicked out on the street to fulfill some “right number?”

Strauss-Kahn in Jail Skit (Saturday Night Live via Hulu)

Here’s a funny skit from Saturday Night Live with a surprising amount of wisdom for the eurozone. I’ll let the video speak for itself.

Well, that’s it for today. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

With 70,000 people protesting in the streets of Athens last Sunday, I’m again reminded of an  American advantage: real political and economic debate. I don’t mean this in an idealized sort of way. Personally, I’ve always found phrases such as “political debate makes a democracy strong” silly and logically problematic. There is nothing intrinsically holy or sacred about debate. In fact, sometimes the best solution to a problem is everyone agreeing to do the right thing without a debate at all.

So, what do I mean? In the United States, politics centers on the real issue, that of big government versus small government. It’s a philosophical struggle between two views on how to run the country and economy. Now, I’m not saying that our political system actually operates this way. The reality is big-government Democrats versus big-government Republicans. However, the public debate does focus on the size of government. If one starts a political conversation with the average American, it’s not surprising to find some understanding of big government versus small government, free markets, etc.

This isn’t the case in places such as Greece. Several articles on the Greek riots pointed out that the protestors blame “corruption” for their problems. In my recent article on Croatia, I pointed out the same mentality there. The locals always blame a generalized “thievery and corruption.” But looking at Greece, the problem is clearly not corruption. Greece’s problem is the same story around the world – a crisis of too much government and too much spending.

The protests themselves show a high level of confusion among the population. What do these 70,000 protestors want the government to do? There’s no money left! Taxes have already been raised, and the country will soon receive a second bailout. Austerity isn’t an option. The Greeks can kick and scream all they want, but there’s no way to sustain their previous level of expenditure. If the Greek population doesn’t even understand the problem, then there’s almost no chance of finding and enacting a solution.

I’m not saying that the United States will solve its debt problems. In fact, I’m very pessimistic about our debt burden. However, our population generally “gets it.” Many citizens may be huge hypocrites on Medicare, Social Security, and their own pet programs, but they understand that spending will become unsustainable. Very few Americans blame our poor economic recovery on abstract ideas such as “thievery and corruption.”

Furthermore, consider this: The U.S. is not in a state of default, but nonetheless, our national debt and spending are constantly in the news. In many European countries, no one even mentions the national debt until a crisis is already in progress.

The first step to solving any issue is properly identifying the problem. In the U.S., this puts us one step ahead of most countries. Unfortunately, the United States has just as much trouble taking the next step as anyone else. While Americans discuss the real problems, never does the U.S. government actually enact difficult changes; and ultimately both parties support larger government.

Let’s get to the rest of the issue. The Casey Research energy team will discuss the importance of good infrastructure for mining and some major infrastructure projects around the world. Then, Alena Mikhan and Andrey Dashkov discuss supply and demand for gold in Q1 2011. Last, I’ll touch on one reason for a rising euro alongside a failing Greece.

The Essential Nature of Infrastructure

By the Casey Research Energy Team

The need for infrastructure is one of the biggest challenges in moving a project toward development. If you’ve discovered a new gas field, you need a pipeline to take that gas to market. If you’ve developed a way to tap into the tidal currents at a narrow pass, you need a transmission line to connect your power to the grid. And if you’ve discovered a mineral deposit, you need a road and an electrical connection to power the massive crushers, grinders, and pumps involved in extracting the mineral from rock.

Of course, resources often turn up not where it’s convenient but in the middle of nowhere. And the need to build a power line or pipeline can easily tip the cost-reward balance into the red, leaving development plans to gather dust on the drawing board.

To tip these projects back into the black, companies have to work with each other and with governments on permitting and building infrastructure. For example, in North America, where the glut of natural gas from shale deposits is keeping prices very low, one consortium is looking to build a liquefied natural gas facility to enable producers to sell gas to buyers an ocean away. In Europe, a pipeline to bring natural gas from Russia to the EU through the Baltic Sea (thereby bypassing Ukraine) is nearing completion, while another Russia-EU pipeline planned along a more southerly route was just dealt a new setback. And in Canada, two recent announcements have set the stage for a resurgence of resource exploration and development in remote areas.

With so many major developments in the works, it’s time to pay heed to the importance of infrastructure.

Those Canadian announcements came from British Columbia (BC) and Quebec – two provinces with swaths of northern lands replete with resources but so bereft of infrastructure that resource development has been very limited. In northern BC, the main stumbling block for new projects has been the lack of a power line. The provincial power grid extends roughly two-thirds of the way up the province, then stops. And that line carries only 138 kV, which means it has little spare capacity. A higher-voltage (287 kV) line reaches only halfway up the province.

Northern communities and projects have to rely on dirty, expensive diesel generators. The mining industry in particular has been lobbying the government for years to build a power line into the north, as there are at least eight major discoveries in the northwest region of the province that stand a chance of becoming mines only if they can tap into the provincial hydropower grid. That lobbying has finally paid off: On May 9, the federal government gave the environmental green-light to the Northwest Transmission Line, as it is known. Construction is set to begin shortly on the C$404 million project, which will extend the 287-kV line another 335 kilometers north.

Several thousand kilometers to the east, the Quebec government is drafting even bigger northern infrastructure plans. The provincial government just announced an ambitious $2 billion plan to build roads and airports within an area of 1.2 million square kilometers, all aimed at supporting development of energy and mineral resources. The Quebec plan foresees 11 new mining projects that could crop up over the first few years of the plan. Access to the north is also expected to prompt development of several hydroelectric projects that will generate 3,000 MW of power.

All told, the government estimates that the projects borne out of this C$2 billion investment will receive $80 billion in public and private investment over the next 25 years. That’s a pretty impressive return.

Then there’s the Nord Stream gas pipeline. This 1,224-km long double pipeline will provide a direct connection between Russia and the European Union by running under the Baltic Sea. It allows Russia to bypass Ukraine, a former satellite state with which Russia has repeatedly clashed over prices and siphoning. Since the EU relies on Russia for over 40% of its gas, the conflicts have threatened its supply.

The first of the pipelines is expected to start transporting gas before the end of the year and the second in 2012. When both are done, the pipelines will be able to move 55 billion cubic meters (bcm) per year. The entire project was financed and developed privately at a cost of €7.4 billion.

While €7.4 billion is certainly a hefty price tag, it comes in below the latest cost estimates for one of the biggest competitors to Nord Stream: the Nabucco pipeline. Nabucco is supposed to run from the Middle East and Caspian region through Bulgaria, Romania, and Hungary to a hub just outside Vienna. The consortium behind Nabucco includes some of the biggest players in European gas, such as RWE of Germany, OMV of Austria, and MOL of Hungary. But the consortium has hit one setback after another over the last five years. Now the project’s price tag has risen from €8 billion to €12-14 billion, and the construction start date has been pushed back to 2013.

Building infrastructure is a complicated, expensive task. Permitting alone can take years, especially when a project crosses borders. After that, financing can provide another major challenge. During those years, the cost of supplies and labor often change dramatically – in the case of Nabucco, consider that the price of iron ore – the main component in steel pipes – has risen 50% over the last year. Yet these projects are essential, and their presence or absence impacts commodity prices in multiple countries.

So what does all this have to do with your investments? Add an item to your due-diligence checklist: the presence of infrastructure, even at early-stage exploration. Whatever commodity a company seeks, hand in hand with discovery comes the question: How can we get it out of here?

If researching infrastructure isn’t really your cup of tea, you can fall back on the first item on your checklist: good management. Knowledgeable and experienced people at the top are always planning for success, so the projects they consider will either already have access to the necessary infrastructure or it will be technically and economically feasible to build.

So if a story seems too good to be true – perhaps a company is telling you about an untapped, highly prospective gas field or a massive copper-gold deposit – check into the local infrastructure. There likely isn’t any, which means there won’t be a gas development or a mine anytime soon.

[While “infrastructure” isn’t one of Doug Casey’s renowned 8 Ps of resource stock evaluation, it is a component that Marin Katusa and his team check out before making an energy investment recommendation. You can put their expertise to work for you – risk- free for three months – with a subscription to Casey Energy Report. Details here.]

Soros Sells Gold – Time to Be Contrarian

by Alena Mikhan and Andrey Dashkov

The current gold bull market has lasted a decade – the same length of time that the great 1970s bull market for precious metals lasted. Many industry old-timers seem to have interpreted gold’s race to almost $1600 and silver’s rise to almost $50 as signs of a grand finale. Our perception is that traders and industry insiders who thought $1000 gold was high have been cashing in.

This may be the thinking behind the recent gold selling done by George Soros. Soros’ selling of holdings in two leading gold-backed ETFs put some wind in the sails of the “end of the gold bull” side of the debate. Not just that April 2011 was a top, but that it was the top. With SEC filings showing that other funds cut their ETF holdings as well last quarter, some folks sure seem to think so.

The question is: Are they right? This seems like a good time to update readers on gold’s fundamentals, in the context of Q1 2011.

The recent selling influenced the figures in the latest report from the World Gold Council (WGC). According to the WGC, ETFs and similar vehicles experienced total net outflows of 56 metric tons (about 1.8 million ounces) in the first quarter of 2011. Total amount of gold held by global ETFs by the end of the quarter was 2,100 metric tons (67.5 million ounces).

The outflows, however, didn’t spell an end to the quarter’s gold run, but coincided with (and perhaps helped to shape) short-term weakness. Those who didn’t see a tidal shift toward a gold bear market took advantage of the selling and added to their positions. WGC reports a 26% annual increase in investment demand – 310.5 metric tons (10 million ounces) in Q1 2011 compared to 245.6 metric tons (7.9 million ounces) in Q1 2010. Noteworthy is that a huge part of this growth was attributed to bar and coin purchases: Physical bar demand alone was responsible for 280.4 metric tons (9 million ounces), which is 62% more than during the same period in 2010. That’s actually rather bullish, as it’s the retail precious metals investor we expect to spark the Mania Phase of this gold bull market.

The balance of supply and demand in the gold market also remains bullish. Demand grew in Q1 2011, but total supply was down 4%. Central banks and official sector institutions acquired 129 metric tons of gold (4.1 million ounces), which is more than their combined purchases during first three quarters of 2010.

The factors that have worked so well for gold so far – the weakening dollar and an uncertainty about the U.S. economy; Europe’s problems with sovereign debts in PIIGS; and political turmoil in Africa and the Middle East – are still in force. Gold remains a safe haven in the eyes of investors. And that includes Soros, by the way, who turned his ETF holdings into shares of Goldcorp (T.G) and Freeport-McMoRan Copper and Gold Inc. (NYSE:FCX), adding the leveraged upside exposure to gold that gold stocks offer.

One of the best ways to learn about how to play the leverage offered by the best gold stocks and profit all along the learning curve is to subscribe to the Casey Research metal publications International Speculator and BIG GOLD.

Why Do More Bailouts Mean a Stronger Euro?

By Vedran Vuk

Some of you have probably been thinking, “What the hell is going on with the euro?” The headlines continue to report the worst from Greece and the rest of Europe, yet the euro continues to get stronger and stronger. Has the world gone completely mad? Common sense suggests that bailouts would be a bad sign for the euro.

Here’s another way to look at it. Yes, the bailouts are bad for Europe in the long run, but for the prospects of higher interest rates in the short term, they could be very useful. When the ECB raises rates, it must consider Greece’s fiscal situation. An interest-rate hike for the eurozone means a higher cost of debt for Greece as well. This is a very sticky situation as the ECB wants to avoid inflation, but it also can’t let Greece fail.

Sure, the ECB could take the rate hikes slowly, but this could be dangerous. Hence, there’s the bailout option. With extra money from a bailout, Greece will be able to more easily weather rate hikes. Hence, the second Greek bailout makes it easier for the ECB to raise rates for the eurozone as a whole without worrying about Greece. And higher rates mean a stronger euro. As a result, currency traders are likely expecting higher interest rates sooner, and hence the currency is rising.

Casey Phyle Announcements

If you’re interested in getting together with other like-minded Casey Research readers, two new Casey phyles are starting up – in Ottawa and in Montreal, Canada.

Interested parties in Montreal should contact Nick at Nickdabramo@aol.com. For the Ottawa group, please contact Greg at greg_utas@rogers.com.

Additional Links and Reads

Found: $775bn of Missing Muni Bonds (Financial Times)

Whoops! The Federal Reserve “accidentally” didn’t count municipal debt held by some households when estimating the size of the municipal debt market. The real figure should be $3.7 trillion – 23% higher than the estimate of $3 trillion. This is hardly a rounding error.

Cyber Cops Stymied by Anonymous Hackers (Bloomberg)

In the Daily Dispatch, we’ve written about the evolving threats to consumers and businesses on the Internet. This article does a good job of explaining the law enforcement problems associated with cybersecurity, and it also covers a list of the most recent corporate breaches.

Bank of America Gets Pad Locked After Homeowner Forecloses on It (WFMY News)

Perhaps it’s a bit early for the Friday Funnies, but this is a great story. Essentially, Bank of America owed a couple reimbursement for legal fees. After five months of not receiving payment, the couple’s attorney filed to have the bank’s assets seized and moved to foreclose on a local Bank of America branch.

Well, that’s it for today. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

With the press going crazy about the Anthony Weiner scandal, I’m reminded of our confused moral compass when it comes to politics. In my opinion, Anthony Weiner should resign, but not because of his sex scandal. Yes, Weiner acted in a morally reprehensible way, and yes, he lied to the American public. But if we made a list of the morally questionable actions of any Congressman, where would one place a sex scandal?

Congressmen are bribed on a regular basis by special interests with promises of revolving-door jobs and campaign finances. Furthermore, they lie to the American public election after election. On a rank ordering of immoral decisions of the average Congressman, Anthony Weiner’s sex scandal is way down the list. While the American public is captivated by the details of racy sex scandals, Congressmen regularly race into the public’s pockets.

Let’s take a look at Weiner himself (pun intended). Over the last decade, Weiner has received $487,365 from the real-estate industry – his top industry supporter. Not surprisingly, Weiner has sponsored legislation such as H.R. 3527, the FHA Multifamily Loan Limit Adjustment Act of 2009. Let’s have a look at the bill’s summary:

Amends the National Housing Act to revise the maximum mortgage loan principal amounts the Secretary of Housing and Urban Development (HUD) may insure for elevator-type multifamily structures for: (1) rental housing; (2) cooperative housing; (3) rehabilitation and neighborhood conservation housing; (4) housing for moderate income and displaced families; (5) housing for elderly persons; and (6) condominiums. Replaces the current specific dollar amount limitations per family unit by which the insurable mortgage principal obligation for elevator-type multifamily structures may be increased. Prescribes instead an increase limitation per family unit of up to 50% higher than the corresponding limitations for non-elevator-type multifamily structures.

Authorizes the Secretary to prescribe a higher maximum (up to 50%) for the principal obligation of mortgages insured for multifamily projects located in an extremely high-cost area (similar to that for mortgage insurance for property in Alaska, Guam, Hawaii, and the Virgin Islands).

That kind of helps the real-estate industry, doesn’t it? On top of that, the bill helps Weiner’s top 2010 donor, M&R Management, a real-estate company with elevator buildings in an extremely high-cost area. In the past decade, Weiner’s campaigns have received $49,500 from M&R Management alone.

Instead of being outraged over a sex scandal, the public should really be outraged over deals like this one. And Weiner is no special case: Just about every member of Congress plays the same game. In comparison to these back-room deals, a sex scandal is nothing.

Weiner and the rest of Congress should resign not for their private transgressions, but for their misdeeds performed right in front of everyone’s eyes.

Before we get started with the rest of the issue, I need to mention a special double-dip bundle offer available only this week. We’re offering our 23-CD Casey Research Summit audio set and a year-long subscription to The Casey Report for nearly a $300 discount. Don’t miss out on this opportunity.

Next up, Jeff Clark will examine the gold corrections of the late 1970s and compare them to today’s corrections. Then, the Casey Research energy team will discuss the prospects for shale gas technology in the rest of the world. Finally, don’t miss Doug Casey’s talk on This Week in Money in the links section.

The Most Important Chart for Gold Investors

Jeff Clark, BIG GOLD

The gold price has been rising steadily for almost a year now, with nary a correction. It fell only 4% last month, and the biggest decline since last July was November’s 5.8% drop. These barely register as “corrections” when one considers we’ve had 18 of them greater than 5% since the bull market began in 2001.

We’re getting used to a persistently rising gold price. Any decline is met with more buying, pushing the price to new highs. But how long can we realistically expect this pattern to continue?

The answer will ultimately be determined by the fundamental factors pushing on the price – more Greece, more money printing, and more economic bad news will all drive gold higher. But even then, have we really said goodbye to big corrections?

History can provide a clue. If we could find a time period within a gold bull market where the price sidestepped major falls, then it might be reasonable to think we’ve entered a period where it will continue steadily climbing. On the other hand, if gold saw big corrections even during, say, a mania, we might need to be on the lookout for them no matter how bullish the factors are today.

Here’s a chart of the corrections that occurred during the final two years of the 1970s mania – one of gold’s biggest parabolic runs in history.

During this historic run, there were seven significant corrections. On average, that’s one every 3½ months and a 10.1% decline. You’ll also see that they were very sharp; four lasted less than ten trading days and all were less than a month. This all occurred in the middle of the mania.

If history is any guide, our correction in January was small, and will be the first of many.

In fact, historical precedent shows that volatility is the norm, even during the Mania Phase of a gold bull market. Big moves, both up and down, are common. I can’t point to a date on the calendar, but sooner or later we’re going to have another downturn, and it won’t be the only one.

This means that great buying opportunities will present themselves regularly. And we show exactly how to capitalize on the next correction in our third annual Summer Buying Guide in the June BIG GOLD. We’re convinced our charts will give you the confidence to buy gold, silver, and precious metals stocks when the weak hands are nervous and selling… Check out this month’s issue risk-free…

How Shale Gas Might Transform the Energy Markets

By the Casey Research Energy Team

In the midst of roller-coaster oil prices and a global reassessment of nuclear power, in early April a key development in the natural gas arena slipped by mostly unnoticed: a report from the U.S. Energy Information Administration (EIA) about global shale gas potential.

We all know that shale gas discoveries in America have altered the country’s gas picture dramatically – a twelvefold increase in production over the last decade has transformed the U.S. from an importer to a self-sufficient, natural-gas-loving nation, while also pushing natural gas prices way down. U.S. shale gas production increased by an average of 48% a year from 2006 to 2010, and output is expected to rise almost threefold between 2009 and 2035, according to the EIA’s latest Annual Energy Outlook.

In the face of such impressive shale success in America, many began to wonder about shale gas potential in other parts of the world. In response, the EIA commissioned a report estimating the global volume of shale gas outside of the United States and the results are, well, a bit mind-boggling.

The report marks the first attempt to estimate the volume of technically recoverable shale gas on a global scale, and did so by assessing 48 shale basins in 32 countries outside of the U.S. (where the resources were already known). While U.S. resources stand at an impressive 862 trillion cubic feet (tcf), those 48 global basins contain an estimated 5,760 tcf of technically recoverable shale gas. That gives a global shale gas total of 6,622 tcf.

To put that into perspective, most current estimates of the world’s technically recoverable natural gas resources (not including shale gas) come in at 16,000 tcf, which means shale resources add more than 40% to the world’s gas volume.

And that’s not all. The study excluded several major types of potential shale resources, based primarily on data limitations. Importantly, the study only covered 32 nations and excluded several gas-rich countries, including Russia and nations in the Middle East. Large, conventional gas resources in these places mean there has been little reason to look for shale gas, so we still have little clue as to how much is there, though most expect sizable amounts. The study also excluded offshore basins. As such, the world’s shale gas resources are certainly larger than this initial count.

Here’s a shortened table, summarizing some of the study’s findings.

We can pull two groups of countries that might find shale gas development pretty attractive out of this table. The first is those countries that currently depend heavily on natural gas imports but also have significant shale resources: France, Poland, Turkey, Ukraine, South Africa, Morocco, and Chile. The second group is those countries that already produce substantial amounts of natural gas and also have large shale resources. In addition to the United States, this group includes Canada, Mexico, China, Australia, Libya, Algeria, Argentina, and Brazil.

There are major differences within these groups, however, on whether to utilize shale resources. France, for example, is thought to have comparable shale resources to Poland. Poland has traditionally relied heavily on Russian natural gas imports, so the country has been keenly issuing shale exploration licenses. Polish Prime Minister Donald Tusk recently said that, while shale gas development has to be environmentally sound, “Our determination is clear: Every cubic meter of gas in Poland must be used if possible.” By contrast, the French government has placed a moratorium on shale gas exploration in response to widespread concerns about the environmental impacts of horizontal drilling and fracturing.

Perhaps the biggest surprise from the above list is China. The shale gas estimate for China came in so high that the country’s National Energy Administration commissioned a shale gas development plan. The China National Petroleum Company completed its first horizontal shale gas test well in late March and is moving quickly to explore China’s shale reserves in partnership with experienced gas producers like Royal Dutch Shell and Chevron.

Energy-hungry China is unlikely to let environmental concerns impede development of what seems to be a truly staggering domestic, unconventional gas resource. In other parts of the world, such as Europe and increasingly, North America, residents are becoming more vocal in their concerns about shale gas.

Environmental backlash could in fact pose the biggest obstacle to shale gas production. There are widespread concerns around the use and disposal of fracking fluids, which are proprietary mixtures of water, sand, and chemical lubricants. Many believe that fracking fluids can – and in places already have – contaminate groundwater aquifers; there is also a major debate about how to dispose of the huge volumes of fracking fluids created in drilling a single well. In addition, a set of recent studies countered the common claim that natural gas is a ”green” fuel, which is based on gas producing less carbon dioxide per unit of energy than “dirtier” fuels like coal. While that may be true, the studies investigated the total carbon emissions created in drilling and fracking a well and collecting, processing, and burning the gas. They found that natural gas is actually worse for the environment than coal.

The debate over fracking will undoubtedly continue for years. The EIA report has added fuel to that fire, as it will be hard for the world to ignore a fuel resource of this size. However, finding shale gas is just one small step toward actually producing it. The report suggests that any shale gas development outside of the United States is likely five to ten years away, primarily because many of the countries that could benefit from shale production do not have the specialized equipment needed to drill and frack horizontal wells.

In fact, one nonprofit think tank – the Post Carbon Institute – is challenging the idea that shale gas production can continue apace even in the U.S. The Institute investigated what would be required to maintain the production increases and determined that the infrastructure requirements are unrealistic. Study author David Hughes estimates there is actually only a 12-year supply of easily accessible, domestic natural gas, in part because well productivity is declining. To maintain the current rate of production would require the drilling of 30,000 wells annually – a slight increase from the current rate of 25,000 and a level that Hughes believes will incite a major environmental backlash. While not everyone will agree with Hughes’ conclusions, it is true that ”technically recoverable resources” often stay in the ground for a very long time because they are not realistically or economically recoverable.

And here’s yet another reason why it may take a long time for the shale gas phenomenon to grow outside of the United States: As long as natural gas prices remain depressed it will remain cheaper for countries to buy gas rather than to develop their own resources. Mexico, for example, is building six new natural gas power plants this year but is planning to increase imports to fuel those plants even though state-owned Petroleos Mexicanos (Pemex) recently discovered as much as one trillion cubic feet of gas reserves. Instead of developing those fields in the northern state of Coahuila, Pemex will instead focus on oil output, and the Mexican state power utility will import more gas.

We all like to imagine renewable resources powering our future, but the truth is that coal, oil, and natural gas currently provide more than 80% of the world’s primary energy needs. Nuclear power adds only 6% and renewables contribute just 2% of global energy – a figure that will at best rise to 7% by 2035. So it seems very likely that shale gas will play an increasingly important role in the years to come. How much of this massive resource will actually see development remains to be seen. But now we have a start on understanding just how much shale gas the world has to offer, and from here economic and environmental concerns will have to fight it out.

Additional Links and Reads

Doug Casey on the SEC and Middle East (This Week in Money)

Doug Casey dismantles the myth of the SEC as a necessary guardian of individual investors. Any benefits have to be weighed against the costs. In the case of the SEC, that means a $2 billion budget as well as the billions spent by companies to meet SEC regulations. Is that money really worth it when the Madoffs of the world are still robbing us? Doug explores this question as well as his thoughts on the Middle East.

Chinese Official Warns on Dollar Assets (Financial Times)

A Chinese official warns of China’s overexposure to the U.S. dollar, and the Chinese government quickly pulls his remarks off the Internet. China is in a tough spot when even one opinion on the dollar can threaten its precarious position.

Swipe Fee Vote Wednesday: Senate Tests Limits of Wall Street Power (The Huffington Post)

On Monday, I noted the many regulations faced by banks. Here’s one that would cap merchant fees for debit-card swipes. It’s tough for banks to plan for the future without knowing what their future business will even be. Is anyone surprised that the banks haven’t recovered yet?

That’s it for today. On a side note before we end for the day, I wanted to mention one more reason to get rid of Anthony Wiener. It’s because he’s apparently rather dumb. Weiner really thought that he could get away with denying his online affair when there were five other women with whom he was similarly engaged. Only an idiot would assume the rest would be quiet. Has he never heard the phrase, “Hell hath no fury like a woman scorned”? Each woman was surely unhappy to hear about others. What a doofus. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

Our policy at Casey Research usually prohibits us from making stock recommendations in our free publications out of respect to our paying subscribers. This restriction is much harder to follow than one might think. After all, we’re constantly researching picks and naturally these companies are often on our minds. Many times, I’ve wanted to write a piece on one of our picks, but couldn’t.

However, since we currently have a special offer for a subscription to The Casey Report along with our 23-CD audio set of the recent Casey Research Summit, I’ll be sharing a few stock picks to advertise the latest issue. To be fair to our subscribers, this is a one-time deal.

Some of these stock picks are a bit unconventional. As a result, I haven’t included the names in the charts; I’ll reveal them toward the end of the article. Unfortunately, investors can be biased; hence I want to make a strong case for these stocks before sharing the tickers. Some of them will certainly surprise you. Let’s get started…

As one can see, Stock 1 has had a tough time until recently. The stock might go down, but there is a powerful resistance line at $25. So, even if the stock doesn’t continue to follow the upward trend, this resistance level will offer support. It would take a major movement to the test this area.

Recently, the trend seems to be breaking down, but we think this is just a momentary pause before the company really starts churning upward on its previous trajectory. Remember: “The trend is your friend.” Since this chart is relatively simple, let’s move on to the next one.

In Stock Chart 2, the trend indicators are extremely clear. While Stock 1 might appear a little shaky, this stock is a sure shot. Look at the almost-perfect connection of the three bottoms in a line. The story is the same for the two peaks. In our opinion, there will soon be a third peak, after which the stock will retrace down as has already happened twice.

The stock should continue pushing upward anyway, but waiting for a minor correction would offer a better entry point. This is the sort of trend dreams – and fortunes  – are made of. Unless there’s another market crash in the next few months, this pick is as good as gold.

We’re particularly proud of identifying this final pick. Our analysts spotted a head-and-shoulders pattern that most others ignored. What threw them off? The left shoulder has a slight anomaly – it doesn’t drop straight down. As a result, most folks ignored this pattern. However, the date of the anomaly was a particularly strong day for the market. If it were any other day, the stock would have fallen straight down and made the head-and-shoulders pattern more obvious to others.

Second, the head isn’t very pronounced, but it is still there. The peak is just barely above both shoulders. Nonetheless, technically speaking, this still qualifies as a head and shoulders. When the stock reached the second shoulder, the decline was predictable(a head-and-shoulders pattern means a fall in the stock price after the last shoulder). As a result, we recommended shorting the stock and made a nice return. Now we’re looking to get back into Stock 3. Our logic will be explained by looking at all three stocks together.

First of all, notice that Stock 1 trades almost inversely to Stocks 2 and 3. This could be a problem, as the gains and losses may offset each other. However, this negative correlation could be a good hedging strategy for more conservative investors. On net, one should still come out on top.

The most interesting relationship is the correlation between Stocks 2 and 3. They both increase at the same time and then retreat together. Then once again, they rise simultaneously. And here’s our reason for investing in Stock 3: an abnormality caused the correlation to temporarily break down. This can’t last for long, and we expect Stock 3 to start moving like Stock 2 once again – upward and fast.

Now it’s time to reveal the identities of these stocks. Unfortunately, they’re not what you think. None of these stocks are Casey Research picks. Here’s a second bombshell: None of these picks are actual stocks. Sorry – I know I’m a few months late for April Fool’s Day.

That’s right. These are not real companies. I used a random number generator and a little math to construct potential paths for nonexistent stocks. The charts above have no patterns – they only appear to have patterns. The stock prices are completely random.

Furthermore, I didn’t pick and choose charts that resemble trends. I simply took the first three charts created by the random generator. Yes, even the head-and-shoulders pattern is randomly generated.

My point is to illustrate the difficulty of finding trends and good stock picks. It takes much more than drawing squiggly (or straight) lines on a chart. Many financial bloggers try to sell themselves as some sort of guru simply based on this technique. Here’s the problem with this approach: How does one tell the difference between real movements in the market and the natural randomness of any stock? Are your “trend lines” following market momentum, or are they following a random pattern of orders entering the market?

Our minds naturally want to see patterns in everything – human learning is inseparably linked to pattern recognition. Unfortunately, not every pattern is a real trend; sometimes it’s just random noise. And this noise can lead us to make grand conclusions based on random data.

There’s only one way to differentiate noise from relevant market information – and that’s knowing the market and the companies inside and out. And that’s exactly what Casey Research does. So while I can’t offer you any free stock picks chosen through a series of hastily drawn lines, I can offer you a free three-month trial of our in-depth research in The Casey Report. With the newest issue coming out today, this is the perfect time to sign up.

For the rest of the issue, the Casey Research Energy Team will discuss Iran’s need for serious investment to keep its oil industry competitive.  Then Charles Vollum again studies historical home prices in terms of gold.

Oil Production Problems Are Brewing in Iran

By the Casey Research Energy Team

Iran – the second largest OPEC producer after Saudi Arabia – produces 3.7 million barrels of oil a day. After years of insufficient investment in infrastructure, however, that output is threatened. Iran’s deputy oil minister, Mohsen Khojasteh-Mehr, says the country has to invest at least $32 billion to maintain its production capacity. If it does not do so, output will fall to 2.7 million barrels per day by 2015.

The Iranian national oil company in fact plans to invest much more – its fifth development plan, which stretches until 2015, envisions investing $150 billion to increase oil production to 4.7 million barrels per day, while also increasing gas production from 600 million to 1,470 million cubic meters. Some $75 million would go towards developing new gas fields, while $34 billion would support development of new oil fields, and $32 billion would be spent to maintain production capacity.

The question is, where is Iran going to get all of this money? The official stance is that the national oil ministry will provide $50 billion and Iranian banks will invest $40 billion. The government expects to raise the other $60 billion through foreign investors. The problem there is that global powers have imposed tight economic and financial sanctions on Iran for its disputed nuclear program. Those sanctions have prompted most major Western companies to leave the country and made it difficult, if not impossible, for Western investors to participate in Iran.

Iran had 138 billion barrels in reserves at the end of 2009. The country also boasts the second largest natural gas reserves in the world, after Russia. But its oil capacity is withering, and not just because of crumbling infrastructure – it also regularly puts itself at odds with its OPEC partners. The country’s Islamic hard-liner President Ahmadinejad sacked his oil minister in a cabinet re-shuffle on May 14 and temporarily took over the position himself. The move came shortly before a June 8 OPEC meeting, and Iran currently holds the rotating position of OPEC president. As other analysts immediately inferred, the move was simply intended to give the Iranian president an opportunity to project himself onto the world stage in open confrontation. Thankfully, these concerns eased a few days later when Ahmadinejad relented and said he would send a member of his cabinet to the meeting.

The OPEC partners are also at odds over current oil prices. Crude prices have increased almost 20% to roughly $100 per barrel since mid-February. The increase suits Iran’s strategy better than Saudi Arabia’s, as the latter has a long history of fostering stability in the oil markets while Iran simply wants the cash.

The revelation from Iran that its infrastructure needs investment is hardly surprising – oil industry watchers are well aware that several key oil producers have been operating under overly draconian fiscal regimes for years. It goes without saying that, without investment, oil infrastructure starts to crumble and, soon after, oil production starts to decline. Venezuela is another country where this situation comes to mind.

The Casey energy team just completed a major investigation into global oil supplies. Specifically, we investigated where exactly the world’s major oil importers – the United States, China, and Japan – get their oil. The results were stark. A full 44% of America’s oil comes from sources that we classify as At Risk (either because the relationship is rocky or because the supplier nation is inherently unstable) or sources where production is declining in a serious way. And the situations for China and Japan are even worse. (If this is the kind of thing you would like to hear more about, consider subscribing to the Casey Energy Report.)

These are all very bullish signals for oil. The world’s major oil importers need to support exploration in new, more stable, and friendlier areas, because it is becoming more and more clear that supplies from the old sources are risky at best. Remember, risk can take the shape of political uprisings, insufficient investments in infrastructure, greedy production taxes, poor international relations, or any number of other challenges. And many of our oil suppliers – a list that includes Iran and Venezuela – boast that entire list of qualities.

Home Prices vs. Home Values, Part 2

By Charles Vollum

Last week we looked at the Case-Shiller Home Price Index stated in gold rather than U.S. dollars, and saw that home prices have been setting new record lows for the past year. Yet the Home Price Index only goes back to 1987… Just how low are home prices compared to the decades before these records began?

U.S. Census Bureau data show that in 1963 the median price for a new home was $17,200, or 15.2 kg of gold. In April of 2011, the median new home price was $217,900, or 4.4 kg of gold – 71% less than in 1963!

But let’s peer back even further, to the cyclical low of the last century – the Great Depression.

Comparing today’s prices to those of the 1930s is a bit harder, as back then most houses were smaller and lacked many of the features we now take for granted. According to The People History, in 1930 the average new home sold for $7,145 or 11.1 kg. By 1935, at the bottom of the Great Depression, the price of a new home had fallen to $3,450 or 3.1 kg – 30% less than the April, 2011 price.

However, in the 1930s the size of an average home was around 1,000 ft², while today’s average home is about 2,169 ft². So homes now cost about 2 grams/ft² – 35% less than the 1935 cost of 3.1 grams/ft². This is even more amazing when one considers that today’s homes include central heating and air conditioning, vastly improved insulation, and many other features and conveniences not found in a typical 1930s home.

So home prices today are not just the lowest in the last 25 years, they are actually lower than at the bottom of the Great Depression!

The Greater Depression isn’t just a possible future that we might encounter – we are deep in it right now. The truth about our situation is being masked by the massive quantities of money being created by central banks around the world.

The key to surviving and thriving is to have your savings out of reach of the government currency manipulators by keeping it in gold, and to ensure that your investments are growing in gold value, not just showing illusory funny-money gains.

Additional Links and Reads

Introductory Statement to the ECB Interest-Rate Decision Press Conference (European Central Bank)

Here’s the source document for the ECB’s remarks regarding today’s interest-rate decision. Rates were kept unchanged. Short-term inflation forecasts moved slightly higher but 2012 inflation remained the same. Furthermore, Trichet used the words “strong vigilance” to signal a July rate hike.

Used-Car Values Beat U.S. Home, Stock Prices: Chart of the Day (Bloomberg)

The price of used cars is on the rise. The story comes with an interesting chart comparing used cars to the S&P 500 and the Case-Shiller Home Price Index.

Dimon Challenges Bernanke on Wall Street Rules (Bloomberg)

Jamie Dimon, CEO of JP Morgan Chase, openly questioned Ben Bernanke over new capital requirements. This comes a day after the banks failed to pass a bill that would have pushed back new debit-card regulations limiting fees charged to merchants.

In my opinion, the growing number of financial regulations is troubling. I know that it’s extremely popular to blast the big banks and wish them nothing but ill will. Many readers enjoy any tirade against the banks. Of course, the banksters deserve humiliation and worse for the bailouts. But we should pay close attention to the growing number of financial regulations. If our anger gets out of control and leads to too many financial regulations, we’re going to make things worse for ourselves and the bankers.

Sometimes anger, pitchforks, and torches are necessary. But in the process of tarring and feathering the culprits, we should also be careful not to burn down our own houses.

That’s it for today. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

Let’s play “what if.”

Start by asking yourself, what if you lived in Somalia and a gang of thugs with machine guns and rocket launchers took over the neighborhood? Or you lived in Iran, where a theocracy was in control - a theocracy with a medieval view of women and, in this scenario, you are a woman? Or Myanmar, where a deeply corrupt military holds tight the reins of power… so much so that if you are not thought to be sufficiently docile, they’ll round you up; thus, you’ll have no trial and no future?

Or China, or Russia, or Whereverstan, where the coercive edge of government is particularly sharp for those who openly disagree with the power elite?

What if, at this very moment, you were remade into a person on the losing side of the social equation in one of these places – finding yourself and your family directly oppressed – even physically threatened – by the resident government?

Then ask yourself: Whom could you look to for relief?

To play this game, you have to really imagine the situation – you need to feel yourself in such a place. To help, picture yourself as a dirt-poor resident of a dusty African town with bad water, little food, dirt roads, sporadic electricity, and armed thugs loitering on the sidewalks, harassing the local women with impunity – your wife and daughter included. And when you protest, they beat you viciously.

Prayers to your preferred deity go unanswered, and what limited resources make it to you through the filters of corruption are barely enough to maintain health. Your family is sick, oppressed, and in constant fear for their lives.

Again, I ask you: Whom in this situation can you look to for salvation? Who is even available to play the hero – the one who, on learning of your plight, will appear riding a white horse and, with sixguns blazing, chase the bad guys out of town?

Whither the Hero?

So, who in this world of ours possesses the strength to banish the forces of dark from your country, and the resources to then help put your depressed economy back on its feet?

Keep in mind that it’s not just your town or country we’re talking about – but all the ill-treated towns and countries of the world. After all, the ultimate question we’re addressing in this “what-if” exercise revolves around the exact entity that might be brought into play to rescue the downtrodden of the world. Therefore, only if the solution can be applied globally can you be assured that the light of freedom will, in time, make its way to the remote village you have been remade in.

Starting with Woodrow Wilson’s League of Nations, humans of modernity hoped that some form of coalition of nation-states might play the role of universal savior. Even the collapse of that ill-fated institution didn’t dampen such hopes, as from its ashes emerged the United Nations.

Today, however, almost no one holds out any hope for such a coalition to prove effective at… well… anything. That the Human Rights Council of the United Nations includes Saudi Arabia, Cuba, China and, until recently, Libya, pretty much says it all.

Moving down the list of possible candidates, we come to regional cooperation organizations, which come in many flavors – some like NATO being overly military, and others such ASEAN being more economically oriented. Might not each of these intra-state organizations dedicate themselves to cleaning up their own backyards?

Unfortunately, as with the United Nations, this is very much the case of asking the foxes to tidy up the chicken coop. Once a group of individuals achieves recognition as an official government (a status not so very different from the kings and queens of yesteryear), they are largely given a free pass. And so it is that, in most cases, inter-regional alliances and trade arrangements transcend any concerns which neighboring states might have over reports of ill-treatment of some other country’s citizens.

Or, as Sergeant Schultz of Hogan’s Heroes fame was prone to intone, “I see nuthink!”

If Not Them, Who?

Which brings us to the notion of a standalone entity that stands ready to act when action is required. Which is to say a global sheriff, ready to mete out justice in any corner of the world should the officially constituted authority thereabouts fail in its responsibilities to protect its citizenry – or is itself the offending party.

As I don’t need to tell you (but for the sake of a smooth transition I will), many believe that the United States government is the only possible candidate for the job.

And it’s not just some Americans who think this way. Despite the steady barrage of criticism the U.S. receives in the international media for its willingness to engage in covert and overt war-making – or, perhaps because of it – downtrodden people around the globe think this way, too.

That is understandably so, given that desperate people are willing to embrace pretty much any conceivable solution to their misery. With no other country possessing anything close to the military might and reach of the United States government – coupled with the country’s storied history as a bastion of liberty - it is only logical that, by default, it is viewed as the only hope.

Unfortunately, these hopes are based on a fantasy.

The reality is that the very thing that makes the United States government the only candidate for the position of global sheriff – its bloated military – is also a major component in its economic downfall. Continuing the metaphor, the U.S. government has sold its white horse and hat to the Chinese, and now has to borrow money for the bullets it uses in its guns.

Let me straighten myself and lean forward toward my desk, in order to type the next line most emphatically.

If you are waiting for the United States of America to ride to your rescue, you are out of luck. It’s not going to happen. Not today, not tomorrow, not ten years from now. Sorry, but that is the way it is; accept it.

And it’s not just that the country is literally bankrupt at this point. It is that the American people are simply not bad-assed enough to banish all the world’s oppressors. That’s not to say that the U.S. military isn’t bad-assed – that it is willing to invade countries for suspect reasons, kick in doors, and fire missiles into cars and houses it only suspects might harbor terrorists, clearly shows that it is.

But it is, thankfully, not bad-assed enough to mount the sort of scorched-earth war seen in the fire bombings of Japanese cities during WWII, where hundreds of thousands of innocents, old and young, were immolated in the pursuit of victory, then finished off with an atomic coup de grâce.

Put another way, at this point the U.S. government has neither the resources, nor the societal will, to become the Truly Evil Empire envisioned in movies such as Star Wars. Furthermore, the world’s poor and downtrodden can no longer look to the U.S. as a potential physical sanctuary. As with many Western countries, immigration is no longer encouraged.

All of which brings me to the point.

Why America Matters

Being comprised as it is of mere mortals, the United States government is entirely prone to missteps and terrible lapses of judgment. Likewise it is susceptible to avarice and panicked response to crisis. Sheer folly and blatant stupidity are also part of its repertoire.

A long thread of actions emanating from such human traits imbued in the U.S. government has brought us to this place – a place where the nation must attend to its own considerable challenges. That means that if you live in one of those desperate places, you can expect no help from these quarters.

That is not the case, however, when it comes to America – which is today perhaps the only real hope you have.

In case you are confused by that statement, I use the word America entirely in the sense that it encapsulates and communicates an idea. That idea is the liberty to live your life without being subjected to undue levels of coercion. My dear partner Doug Casey has often made this point, but it is a point worth repeating in the context of these musings. You see, while there is zero chance of the government of United States coming to the rescue of the world’s downtrodden, there is every chance that America can do just that.

That contention is solidly supported by the uprisings now under way in many Arab countries. The correct way of viewing those uprisings, in my view, is as the very antithesis to the ideas pushed forward by the region’s murderous mullahs. The latter go so far as to use mysticism to get young people to kill themselves and others, with very limited real effect. In sharp contrast, the ideas of the youth rioting in the streets of Cairo, Syria, and elsewhere are firmly rooted in the desire for increased levels of personal freedom – the driving idea of America at the birth of the nation.

Thus, a very good idea is effectively chasing out some very bad ideas.

The good news is that the idea of America is an incredibly powerful and persistent idea, simply because it resonates so deeply with the basic instincts of the human animal. No one likes to be oppressed, to be threatened.

Resisting the usual temptations to spin off on tangents, I’m going to try to jump straight into something of a conclusion here, then get on to other items I wanted to bring to your attention today.

• The World Is Not Perfect. It never has been, and never will be. There will always be pockets of despair, the worst of which are invariably caused by especially corrupt and coercive governments. But it’s only a matter of degree, as it is not an exaggeration in the slightest when I say that the operating principle of all the nation-states could be summed up as, “You belong to us, so do as we say, and pay up when we tell you to, or else!”
   
• Foreign Interventions Are No Answer. For far too many reasons to list here, the idea that one entity can cross a border to bring permanent relief to another – at least on anything other than a very small scale – is a non-starter. Nation building is incredibly difficult and expensive, and is made even more so when there are big cultural differences between the occupiers and the occupied.

  That two of the world’s most powerful countries – the Soviet Union and the U.S. - have broken their picks trying to remake Afghanistan provides the perfect case study. Even in the case of the Libyan opposition, whatever semblance of solidarity of purpose that might have coalesced around the burning desire for freedom – a solidarity that would likely emerged as a key organizing principle in the post-Khaddafi era – is now likely to be diluted and even swept aside by the intervention of the West militarily, and with payoffs to favored groups, to the exclusion of others.
   

• Neither Is Foreign Aid. Shipping billions of dollars in aid to the leadership of a nation as a way of bringing them into line with the donor country’s own interests merely serves to prop up the status quo, skew the local economy, and retard the emergence of more freedom-oriented forms of government. I always found it positively Orwellian that at the height of the Cold War between the U.S. and the Soviets, the U.S. actively propped up the latter with huge supplies of corn and wheat. Absent U.S. food aid, the Soviet state would have collapsed years earlier.
   
• The United States Government, Though Counterproductive, Is Irrelevant. As discussed in my article last week, the United States government has deviated dangerously from the ideals of America, and is now well down the slope of becoming a police state itself. As such, it is providing a negative example to the rest of the world – and not just to the people on the street, but to their governments who look to the United States as something of a compass as to right and wrong.

  The good news is that the idea of America has long ago transcended any domestic degradations of that idea. Like the contents of a benevolent version of Pandora’s box, the idea of America has been released and cannot be put back again.

That, in my firmly held opinion, is why America is important. Of course, history does not move quickly in most regards, and so the idea of America – born over 200 years ago – is still working its way around the globe.

The Arab Spring is only the latest surge of the idea, and it certainly won’t be the last, because the idea of personal freedom is too powerful, too ingrained in the human psyche, not to eventually succeed against the forces that would extinguish it.

Returning momentarily to our “what-if” exercise – the stark reality is that there is little that any of us as individuals can do to effectively help people who find themselves in the iron grip of a particularly bad government.

We can, however, speak out against these governments, in order to shed light on their actions in the hope that other governments and business leaders with influence in those countries will help bring about a change. Failing such changes, sooner or later the people themselves will rise up, as they are now in the Middle East – and as they did in America in 1775 – and force the situation to improve.

Is there an investment angle in this? Absolutely. Countries with an honest judiciary and strong private property rights, that live within their means (which in turn allows them to minimize taxation), and don’t get carried away with regulation and other forms of coercion create powerful economies. Focus your investments in those areas, and it is hard to go wrong.

Of course, few if any countries meet all those criteria, though there are those that get much right – Singapore and Switzerland, to name a couple. Helping to make the point, check out these charts from dear reader Russ that I received today. The top chart shows the price of gold in British pounds and U.S. dollars, and the bottom in Swiss francs. Notice anything?

Thus, watching the news for developments indicating that countries are moving in the right direction on the freedom scale – putting the rights of the individual ahead of the wishes of the masses, or the dictates of a self-serving leadership – can prove a very profitable pastime.

And with that, I’d like to move on by sharing with you a couple of somewhat related pieces.

Understanding Coercion

Everyone understands why it’s wrong for a hoodlum to demand that you hand over your wallet, and threaten you with violence if you don’t. But very few people understand the corollary between that situation and the insidious nature of government’s coercive powers.

The following short illustrated video from Reason.com does a great job of explaining the fundamental failure of principle in the operating methodology of today’s nation-states. It is very well worth a watch, and passing along. Click on the image to watch.

This next piece was written by our own Doug Hornig, following an exchange of emails about a SWAT team in California kicking down the door of some poor guy in the wee hours of the morning, and dragging him off in his underwear – on a warrant issued by the Department of Education.

Doug Hornig’s article follows…

This Is America?

By Doug Hornig

It is an article of faith among Americans that we defeated the evil Soviet empire in the Cold War. But did we really win?

True, the Soviet Union dissolved, due in part to the pressure we applied by persuading them to engage us in a financially ruinous arms race. But if the Cold War was about them trying to spread their way of life to our shores, then the line between winner and loser is blurry indeed.

The USSR was a full-blown police state, with whatever individual liberties that existed subject to the whims of the state and its minions at the KGB. Here, we pride ourselves on a Constitution that was written to protect our basic rights from the brute force of an overweening government. But as the Cold War morphed into the War on Terror (the “Forever War,” in Doug Casey’s apt phrase), so is the country drifting ever closer to the kind of society we profess to abhor.

In the June 3 Daily Dispatch, constitutional lawyer Edwin Vieira was quoted as saying that on a freedom scale of 1-10, with 10 being a Soviet-style police state, the U.S. presently sits at about a 7. Ever more frequently, violence is the preferred first option for law enforcement agencies which are rapidly becoming indistinguishable from the military. (This is of no small consequence – consider that a police officer’s duty is to apprehend a suspect, while a soldier’s is to kill him… a rather different mindset.) Several recent, troubling incidents make the point.

 The first involves what might whimsically be termed “dirty dancing,” if it were something we could maintain a sense of humor about. It seems that back in 2008 a group of young people descended on the Jefferson Memorial at midnight – when no one else was around – and danced to the memory of Old Tom. One woman who was arrested for this form of expression sued the Park Police, lost, and then appealed. On May 17 of this year the U.S. Court of Appeals ruled against her, saying that dancing at memorials is forbidden “because it stands out as a type of performance, creating its own center of attention and distracting from the atmosphere of solemn commemoration.” Apparently, tourists talking boisterously and clicking photos of their scampering children are not considered similarly “distracting” amid all the solemnity.

In protest of the court decision, a second group gathered on May 28 and, despite warnings from the Park Police to cease and desist, began quietly to dance. They – including a couple merely embracing and swaying to their own internal music – were summarily cuffed and arrested, some after being thrown violently to the floor. A video of the bust went viral on YouTube.

Now, to be sure, the protestors were intentionally provoking the cops. And one could make the case that there are limits to the kinds of behavior that are appropriate in a public space. But it’s pretty unlikely that Thomas Jefferson, who once wrote that “a little rebellion now and then is a good thing,” would have approved of the treatment of those dancing beneath his gaze. After all, had the protestors been allowed their dance moment, they undoubtedly would have become bored with it in short order and gone their merry way, no harm done. Instead, the list of things for which we can be body slammed and arrested grows longer.

Second up, we have a strange story out of Stockton, California. There, at 6 a.m. on June 7, a squad of 13 federal agents smashed in the door of one Kenneth Wright, a man with no criminal record. They were in a search of the man’s estranged wife, and the warrant for the woman’s arrest was sworn out by – are you ready for this? – the Department of Education! DoE has confirmed they executed the warrant – they write about 30 a year, their inspector general’s office says – but declined to discuss the charges other than to say they’re part of an ongoing criminal investigation. (The warrant seeks evidence in a financial aid fraud case.)

Well… If you’re wondering what sort of financial-aid problem necessitates a forced-entry, no-knock raid at dawn, let alone why our Education Department even needs heavily armed officers described by Wright’s neighbors as looking like a SWAT team, you’re not alone.

This tangled tale has taken some odd turns. At first, local TV said that the wife’s crime involved a delinquent student loan, but DoE claims it doesn’t search homes in such instances. The station retracted its earlier report, but continued its coverage of the story here, a site that also links to a copy of the warrant. In any event, Wright says he wasn’t presented with that warrant until after he’d been cuffed and the six-hour search of his home had begun.

If true, that’s bad enough. But there’s also the issue of why authorities felt that this level of intrusion – which included locking the man in a police car for six hours and his three small children (ages 3, 7, and 11) for two – was an appropriate action. Might not a calm knock at the door, followed by an inquiry as to the wife’s whereabouts and perhaps a gentle search of the house for evidence, have sufficed? These days, though, standard operating procedure appears to dictate the exertion of the maximum amount of force authorities think they can get away with from the outset. Little things like destroying a door and terrorizing innocent children hardly seem to matter.

On the other hand, it’s not too paranoid a stretch to imagine that the whole thing was a setup from the get-go. Just a reminder from Big Brother that it holds all the good cards and none of us is secure in our own homes. Wright certainly looked like a guy who’d been coached when he proclaimed to the camera (in a segment that’s now been deleted): “People who have student loans, pay your bills, take care of your credit. If you don’t believe me, this could be you one morning at 6 o’clock.”

Difficult to say which is worse.

There’s no such difficulty with our final story. An unwarranted death is the worst possible outcome of a police raid.

At 9:30 a.m. on May 5, 26-year-old José Guerena, a Marine veteran who had logged two tours of duty in Iraq and had no criminal record, was asleep in his Arizona home after having returned from working the night shift at a mine. For reasons that authorities have not revealed, that home was targeted as part of a multi-pronged marijuana conspiracy arrest operation. What happened next was captured by a helmet cam and leaked to someone who posted it to YouTube. As you watch this, you’re forgiven if you think you’re seeing a Seal team raid on al-Qaeda. No, these are not soldiers. They’re Pima County sheriff’s deputies. Again, sheriff’s deputies.

Guerena’s wife, who was inside with the couple’s four-year-old child, says that she panicked at the sight of these armed strangers outside her window. She screamed for her husband to wake up. He did, and in the confusion of the moment, thinking he faced a home invasion, pushed her and their son into a closet (miraculously, they were unharmed), then grabbed his AR-15 and stepped into a dark hallway to protect his family. Big mistake.

Originally, Pima County officers reported that Guerena had opened fire on them. Later, they recanted and admitted that the safety was still on and the gun had not been fired. They also confirmed that, on their end, they shot 71 times, with 60 bullets hitting the “suspect.” Though surviving such an assault seems impossible, we’ll never know for sure, because paramedics were refused access to the house for over an hour. A search turned up nothing illegal.

Now, search warrants, police affidavits, and all other documents related to the case have been sealed by court order, ostensibly to protect an ongoing investigation, and the sheriff declares they may never be released. Journalists point out that this is a peculiar explanation, considering that the records were unsealed until four days after Guerena’s death, just about the time police were forced to revise their accounts of the raid. The stench here just worsens.

So, is Vieira right: Do we clock in at 7 out of 10? Or was Ron Paul more on the mark when, asked whether America was turning into a police state, he replied that we’re already there? Either way, it’s a sobering thought.

David here again. We just finished work on a special report featuring a lengthy interview with Dr. Vieira that will be sent to subscribers to The Casey Report next week.

• If you have never tried The Casey Report, there has never been a better chance to give it a try – as, in addition to the special report just mentioned, when you take advantage of a three-month trial subscription to The Casey Report today, you’ll also receive the complete 23-CD audio set from the recent Casey Research Boca Raton Summit, which includes Dr. Vieira’s powerful banquet speech, free of any additional charge. 

This is a very special, and therefore short-lived, offer. If you’re interested, you only have until June 14 to act. Here’s the link to learn more and to sign up.

You’ll be glad you did – the June edition of The Casey Report, released Thursday, June 9 – focuses on the outlook for the U.S. dollar in a global context, detailing where it’s heading in the short- and longer-term, and ways you can profit. If you have never seen The Casey Report, this is your best opportunity to do so. Click here to learn more and sign up today.

Speaking of the Dollar

Since early April, we have been warning readers of the likely consequences of the Fed’s decision to make a shift in policy, stepping back from full-tilt quantitative easing at the end of June. Among the potential consequences, as I saw it, were upward pressure on the dollar and downward pressure on commodities and equities.

A number of dear readers have written questioning why, if our analysis is right, has the status quo persisted for the most part (though the dollar rallied quite a bit in May)? After all, wouldn’t Mr. Market, having heard Bernanke restate the Fed’s intentions to cut back its monetization of Treasury auctions, have trimmed his sails ahead of time in anticipation?

In a word, no. Mr. Market, apparently, didn’t fully believe Mr. Bernanke. Or, at least he didn’t until the Fed chairman again made his intentions clear this past week. Since that point, and persisting to this moment, things have become a bit wiggly, with equities, along with precious metals and commodities, starting to take damage.

While Bud Conrad goes into far greater depth on the topic in the current edition of The Casey Report, the chart here – a three-year snapshot of the Dollar Index (the dollar against competing currencies) – should give you a sense of the potential scale of the dollar rally we might see.

Now just because the dollar rallies, it doesn’t mean that precious metals will fall all that much, for all that long – though a continuation of the recent correction is certainly possible.

But where it gets really, really interesting is when the Fed is forced to continue its quantitative easing later this year, or early next. While I don’t have time to present the specific data points here and now (again, they are in the June edition of The Casey Report), the big slides down for the dollar in the three-year chart above correlate closely to Fed announcements of big quantitative easing initiatives.

The size of the continuing federal government’s deficit spending, and the limited number of potential buyers for the debt it will have to issue to support that spending, absolutely assure we haven’t seen the end of the Fed’s monetization. But when that next effort – whether it’s called QE3 or something else – is announced, it could very well trigger an outright collapse in the dollar.

Buy more gold and silver on any corrections.

The Tax Man Cometh – to Kitco

The news broke today that popular precious-metals company Kitco – among a number of other precious-metals companies – has been dragged into a Canadian government investigation of tax fraud. While the details are still sketchy, the investigation is apparently related to the collection and remittance of value-added taxes.

While we do not know what the implications are, this clearly could have some impact on Kitco’s business and investors who use their gold storage programs.

We are doing additional research on the situation, but our understanding is that allocated storage accounts should not be at risk. That may not, however, be the case with pool accounts and other unallocated products. Normally, those should be fine, too – but one should never underestimate the power of governments when they decide to begin freezing or seizing assets.

Until the situation is resolved, we can only hope for the best for our friends at Kitco, and for their clients. Here’s the story.

Friday Funnies

This week, primarily because I am running late – but also because they’re good – I’m running a list of Canadian jokes from a Canadian subscriber, Garry J.

Canadian Jokes
 

Joke # 1

After the North American Beer Festival, all the brewery presidents decided to go out for a beer. The guy from Corona sits down and says, “Hey Señor, I would like the world’s best beer, a Corona“’ The bartender dusts off a bottle from the shelf and gives it to him.

The guy from Budweiser says, “I’d like the best beer in the world, give me ‘The King Of Beers,’ a Budweiser.” The bartender gives him one.

The guy from Coors says, “I’d like the only beer made with Rocky Mountain spring water, give me a Coors.” He gets it.

The guy from Molson Canadian sits down and says, “Give me a Coke.” The bartender is a little taken aback, but gives him what he ordered.

The other brewery presidents look over at him and ask, “Why aren’t you drinking a Molson?”

The Molson Canadian president replies, “Well, I figured if you guys aren’t drinking beer, neither would I.”

Joke #2

A Canadian is walking down the street with a case of beer under his arm. His friend Doug stops him and asks, “Hey Bob! Whatcha get the case of beer for?”

“I got it for my wife, eh,” answers Bob.

“Oh!” exclaims Doug, “Good trade.”

Joke #3

An Ontarian wanted to become a Newfie. He went to the neurosurgeon and asked, “Is there anything you can do to me that would make me into a Newfie?”

“Sure, it’s easy,” replied the neurosurgeon. “All I have to do is cut out 1/3 of your brain, and you’ll be a Newfie.”

He was very pleased, and immediately underwent the operation. However, the neurosurgeon’s knife slipped, and instead of cutting 1/3 of the patient’s brain, the surgeon accidentally cut out 2/3 of the patient’s brain.

The surgeon was terribly remorseful, and waited impatiently beside the patient’s bed as he recovered from the anesthetic. As soon as the patient was conscious, the neurosurgeon said to him, “I’m terribly sorry, but there was a ghastly accident. Instead of cutting out 1/3 of your brain, I accidentally cut out 2/3 of your brain.”

The patient replied, “Qu’est-ce que vous avez dit, monsieur?”

Joke #4

Did you hear about the war between Newfoundland and Nova Scotia ?

The Newfies were lobbing hand grenades; the Nova Scotians were pulling the pins and throwing them back.

Joke #5

In Canada , we have two seasons… six months of winter and six months of poor snowmobiling.

Joke #6

One day an Englishman, an American, and a Canadian walked into a pub together. They proceeded to each buy a pint of Labatt Blue. Just as they were about to enjoy their beverages, three flies landed in each of their pints.

The Englishman pushed his beer away from him in disgust. The American fished the offending fly out of his beer and continued drinking it as if nothing happened. The Canadian picked the fly out of his drink and started shaking it over the pint, yelling, “SPIT IT OUT, SPIT IT OUT, YOU BASTARD!!!”

Joke #7

A Quebecer staying in a hotel in Edmonton phoned room service for some pepper. 

“Black pepper, or white pepper?” asked the concierge.

“Toilette pepper!” yelled the Quebecer.

Joke #8

An American, a Scot, and a Canadian were in a terrible car accident. They were all brought to the same emergency room, but all three of them died before they arrived. Just as they were about to put the toe tag on the American, he stirred and opened his eyes. Astonished, the doctors and nurses present asked him what happened.

“Well,” said the American, “I remember the crash, and then there was a beautiful light, and then the Canadian and the Scot and I were standing at the gates of heaven. St. Peter approached us and said that we were all too young to die, and said that for a donation of $50, we could return to earth. So of course I pulled out my wallet and gave him the $50, and the next thing I knew I was back here.”

“That’s amazing!” said the one of the doctors. “But what happened to the other two?”

“Last I saw them,” replied the American, “the Scot was haggling over the price, and the Canadian was waiting for the government to pay his.”

Bits and Pieces

iPad Apps

Recently, I asked you dear readers if you had any recommendations for iPad apps. While a number of suggestions came in, I have been flat-out working on The Casey Report over the last week and so am way behind on my correspondence. Here’s one note that made it through though… and I quote:

You had mentioned if we readers knew of any iPad Apps. I highly recommend Zite. It pulls in news sources from all over the way and learns from your browsing habits to bring you more of what you like. It is an unbelievable app. I would also recommend Flipboard, which allows you to manually input your sources such as Google Reader, various websites, even your twitter feed, from which it collects the new articles/photos/videos. Two of the best apps on iPad. Enjoy!

Note to Obama: Canada Is Not the Cayman Islands

The following came to me courtesy of the International Man Daily Communiqué. It is well worth a read, as it reveals a heavy-handed attempt by the IRS to turn all of the world’s financial institutions into stooges, with serious consequences for Americans, and for the world’s financial system, for that matter.

Blame It on Commodities

Do you know why the U.S. dollar has been falling since 2002? Well, according to esteemed Fed Chairman Bernanke, it is due to the demand for commodities. On seeing this article, our own esteemed Chairman Casey was heard to call Bernanke, and I quote, “A complete, utter, dangerous fool.” Meanwhile, our own Kevin Brekke weighed in on Bernanke’s comments from the serenity of Switzerland by quipping, “And the weather channel reports that historical evidence shows that falling trees cause hurricanes.”

Is Bernanke a fool, a charlatan, or both? Here’s the article; you decide.

Kill the Camels

In this next video that appeared on Bloomberg, there is little question that the individual being interviewed is both a fool and a charlatan. Believe it or not, his company is seeking to generate revenue by earning carbon credits by – and you really can’t make this stuff up – snuffing out the lives of wild camels in Australia. It seems, if you buy this man’s line of BS (I had to double-check that it wasn’t April Fools Day – it wasn’t, it’s just Australian Fools Day) wild camels are a big contributor to global warming, and so his company should be rewarded for killing them. It’s worth a watch, if only to hear how many ways one can euphemistically refer to slaughtering camels without actually using the word “kill.”

Better Stock Up

Another thing that Doug Casey likes to say is, “As bad as it gets, as good as it gets.” To wit, the more extreme the government’s actions, the more likely it is there will be a public backlash that gets things straightened out again. This commentary on the government’s initiative to dictate the kinds of light bulbs you can own is a good one.

Quote of the Day

“It now appears that the EU, ECB and IMF may be deciding to double down – and next year triple down – and throw more good money after plenty of bad to bail out Greece’s reckless creditors rather than opt for an orderly bail in (via an orderly debt restructuring). This is option 6 in our menu of options for debt restructuring of Greece – the mother of all bailouts and the mother of all moral hazard play.

“The cost of pretending to contain contagion in the short run to avoid an orderly debt workout will be a disorderly workout and massive contagion in 2013 or after. As senior creditors like the troika continue to replace junior private creditors lucky enough to have their claims coming to maturity in the next two years, they will set up the remaining unlucky creditors to be whacked harder by an Argentine-style haircut when a debt at 160% of GDP hits the wall.” – Nouriel Roubini

That’s It for This Week

As I sign off, I’d like to again urge you to give serious thought to signing up for The Casey Report today, or at least before the close of business on Tuesday June 14. The newsletter alone is a bargain – when you throw in the CDs from the Boca Raton Summit, and the special report featuring the interview with Dr. Vieira (which I guarantee you’ll be talking to your friends about for some time to come), it’s a steal. Details and a sign-off form here.

And with that shameless but well-intentioned commercial plug, I will sign off by thanking you for reading and for being a subscriber to a Casey Research service.

David Galland
Managing Director
Casey Research

Dear Reader,

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

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

Steve Austin Revisited – Part III

By Doug Hornig

In our final installment of this series, we examine artificial hearts and exoskeletons and ponder what’s next in Steve-Austin-Land. If you want to read the first two parts in this series, here is Part I and here is Part II.

The Heart of the Matter

Heart transplants have become relatively commonplace since Dr. Christiaan Barnard performed the first one in South Africa 43 years ago, and they work pretty well these days. Average five-year, male/female survival rate is now 73.1/67.4%. The longest-lived recipient lasted 31 years before succumbing to cancer, and many remain alive 20 or more years after receiving a donated heart.

All well and good. But the problem is of course that demand always far outstrips supply, and the result is a waiting list of over 3,000 individuals in the U.S. alone. Thus the invention of an artificial heart – one that is functional, self-contained, tolerated by the body, and long-lasting – remains one of medicine’s holy grails.

We haven’t gotten there yet. At the moment, artificial hearts now are used primarily as a bridge to transplants. However, that may change in the very near future. Several different researchers are racing toward clinical trials of new devices, which could commence as soon as this year.

While we await the arrival of a self-contained bionic heart, though, there is a possible alternative. In 2010, the FDA approved the use of the SynCardia Total Artificial Heart. The SynCardia is a descendant of one of the original designs, the Jarvik 7. Over the years, advances in miniaturization have allowed the SynCardia to be controlled by an external device that has shrunk from a 400-pound behemoth to a 13-pound backpack. And in May, the first patient went home with one. You can learn about his story here.

It’s pricey, at about $125,000 for the unit and $18,000 per year for maintenance; it’s still a cumbersome machine; and the user’s body is still tethered to an external source of life. But it’s a milestone in the same way that the vacuum tube eventually – and inevitably – begat the microchip.

The Ultimate Warrior

As everyone now knows, robotics is playing an ever-increasing role in modern warfare. Smart bombs guide themselves to precise targets, while drones controlled from Virginia attack al-Qaeda sites in Pakistan. Perhaps someday, whole battles will be fought with no blood spilled, as combatants vie to see who has the superior machines.

Until that day arrives (if it ever does), the basic unit of military currency is still the solitary soldier. But the guy in fatigues and combat helmet is a distant memory. Today’s fighter is decked out with an array of sophisticated equipment that would have left the original G.I. Joe scratching his head. And there’s more to come. Exoskeletons are on the way.

An exoskeleton is just what it sounds like – a set of metal bones and joints worn on the outside of the body. (If you’re thinking Iron Man here, that would be the advanced version.) A lot of companies are working on them, and they aren’t just for soldiering.

One of the things they can do is get paraplegics out of their chairs and walking, as you can see in this October 2010 demonstration, where California’s Berkeley Bionics unveiled its eLEGS exoskeleton (the system was later recognized as one of Time magazine’s best inventions of 2010):

eLEGS is worn over the clothing (including the shoes), and the wheelchair-bound can reportedly get in and out of the contraption within one to two minutes. Once standing, the onboard computer employs sensors to track the users’ gestures. It then figures out what the users intend to do and provides the proper level of assistance.

According to Berkeley Bionics, a limited release in rehab clinics is scheduled for the second half of this year. But the ultimate goal is to make the product available for home users, so they can don it in the morning and wear it all day.

Honda is preparing to introduce a somewhat simpler version, designed to help those who aren’t paralyzed but could use some assistance in getting around and to relieve stress on workers whose jobs require long periods of standing or crouching. You can view it here.

Then there’s HAL. No, this is not a reference to the computer that wouldn’t open the pod bay door in 2001: A Space Odyssey (although its developer, a dedicated science fiction fan, may well have intended the association). This HAL – short for Hybrid Assistive Limb – is an exoskeleton. Its job is not to restore normalcy to the disabled, but to augment the wearer’s physical capabilities. Here’s HAL in action.

Okay, it’s a little difficult to envision the civilian applications for HAL. Yes, the test subject can do squats with 40 kg (88 lb.) of rice in his arms. So a worker could move heavy objects around with no strain to his back. But isn’t that what we already have forklifts for? And is anyone interested in seeing Olympic weightlifting marks fall as guys in HAL suits hit the mats?

The military, though, is another matter. Commanders have been wishing for a super-soldier for a long time. Soon they may have one. Check out the real-life Iron Man that Raytheon is working on for the Pentagon, or competitor Lockheed Martin’s HULC.

Give someone the ability to carry an entire arsenal of armaments with no loss of mobility, bulletproof the suit, refine the powerpack, and now you’ve got a real battlefield innovation.

What’s Next?

In truth, we’ve only scratched the surface of what’s going on in Steve-Austin-Land these days. Innovations are coming so fast and furiously that people with electronically enhanced body parts may well become the norm within the lifetime of many of our readers.

That leaves the final frontier: the human mind. Is it possible to build machines that truly think, that undeniably possess what we regard as consciousness? And, to flip the question around, is it possible to give the biological brain the computational power of a supercomputer?

The answers may surprise you.

All of the technology detailed in this series is very mainstream – either here now or planned in the near future. But the mind is still largely uncharted territory, where monsters may yet lie. Out there, venturing from the mainstream to the periphery, the ideas get wild and woolly indeed. We’ll tackle this topic in the future, so stay tuned.

[Exciting developments in technology can make investing seem easy; but risk and uncertainty lurk throughout the sector. Let Alex Daley and his team help you navigate it successfully. A trial subscription to Casey Extraordinary Technology is risk-free for three months. Learn more here.]

The Essential Nature of Infrastructure

By the Casey Research Energy Team

The need for infrastructure is one of the biggest challenges in moving a project toward development. If you’ve discovered a new gas field, you need a pipeline to take that gas to market. If you’ve developed a way to tap into the tidal currents at a narrow pass, you need a transmission line to connect your power to the grid. And if you’ve discovered a mineral deposit, you need a road and an electrical connection to power the massive crushers, grinders, and pumps involved in extracting the mineral from rock.

Of course, resources often turn up not where it’s convenient but in the middle of nowhere. And the need to build a power line or pipeline can easily tip the cost-reward balance into the red, leaving development plans to gather dust on the drawing board.

To tip these projects back into the black, companies have to work with each other and with governments on permitting and building infrastructure. For example, in North America, where the glut of natural gas from shale deposits is keeping prices very low, one consortium is looking to build a liquefied natural gas facility to enable producers to sell gas to buyers an ocean away. In Europe, a pipeline to bring natural gas from Russia to the EU through the Baltic Sea (thereby bypassing Ukraine) is nearing completion, while another Russia-EU pipeline planned along a more southerly route was just dealt a new setback. And in Canada, two recent announcements have set the stage for a resurgence of resource exploration and development in remote areas.

With so many major developments in the works, it’s time to pay heed to the importance of infrastructure.

Those Canadian announcements came from British Columbia (BC) and Quebec – two provinces with swaths of northern lands replete with resources but so bereft of infrastructure that resource development has been very limited. In northern BC, the main stumbling block for new projects has been the lack of a power line. The provincial power grid extends roughly two-thirds of the way up the province, then stops. And that line carries only 138 kV, which means it has little spare capacity. A higher-voltage (287 kV) line reaches only halfway up the province.

Northern communities and projects have to rely on dirty, expensive diesel generators. The mining industry in particular has been lobbying the government for years to build a power line into the north, as there are at least eight major discoveries in the northwest region of the province that stand a chance of becoming mines only if they can tap into the provincial hydropower grid. That lobbying has finally paid off: On May 9, the federal government gave the environmental green-light to the Northwest Transmission Line, as it is known. Construction is set to begin shortly on the C$404 million project, which will extend the 287-kV line another 335 kilometers north.

Several thousand kilometers to the east, the Quebec government is drafting even bigger northern infrastructure plans. The provincial government just announced an ambitious $2 billion plan to build roads and airports within an area of 1.2 million square kilometers, all aimed at supporting development of energy and mineral resources. The Quebec plan foresees 11 new mining projects that could crop up over the first few years of the plan. Access to the north is also expected to prompt development of several hydroelectric projects that will generate 3,000 MW of power.

All told, the government estimates that the projects borne out of this C$2 billion investment will receive $80 billion in public and private investment over the next 25 years. That’s a pretty impressive return.

Then there’s the Nord Stream gas pipeline. This 1,224-km long double pipeline will provide a direct connection between Russia and the European Union by running under the Baltic Sea. It allows Russia to bypass Ukraine, a former satellite state with which Russia has repeatedly clashed over prices and siphoning. Since the EU relies on Russia for over 40% of its gas, the conflicts have threatened its supply.

The first of the pipelines is expected to start transporting gas before the end of the year and the second in 2012. When both are done, the pipelines will be able to move 55 billion cubic meters (bcm) per year. The entire project was financed and developed privately at a cost of €7.4 billion.

While €7.4 billion is certainly a hefty price tag, it comes in below the latest cost estimates for one of the biggest competitors to Nord Stream: the Nabucco pipeline. Nabucco is supposed to run from the Middle East and Caspian region through Bulgaria, Romania, and Hungary to a hub just outside Vienna. The consortium behind Nabucco includes some of the biggest players in European gas, such as RWE of Germany, OMV of Austria, and MOL of Hungary. But the consortium has hit one setback after another over the last five years. Now the project’s price tag has risen from €8 billion to €12-14 billion, and the construction start date has been pushed back to 2013.

Building infrastructure is a complicated, expensive task. Permitting alone can take years, especially when a project crosses borders. After that, financing can provide another major challenge. During those years, the cost of supplies and labor often change dramatically – in the case of Nabucco, consider that the price of iron ore – the main component in steel pipes – has risen 50% over the last year. Yet these projects are essential, and their presence or absence impacts commodity prices in multiple countries.

So what does all this have to do with your investments? Add an item to your due-diligence checklist: the presence of infrastructure, even at early-stage exploration. Whatever commodity a company seeks, hand in hand with discovery comes the question: How can we get it out of here?

If researching infrastructure isn’t really your cup of tea, you can fall back on the first item on your checklist: good management. Knowledgeable and experienced people at the top are always planning for success, so the projects they consider will either already have access to the necessary infrastructure or it will be technically and economically feasible to build.

So if a story seems too good to be true – perhaps a company is telling you about an untapped, highly prospective gas field or a massive copper-gold deposit – check into the local infrastructure. There likely isn’t any, which means there won’t be a gas development or a mine anytime soon.

[While “infrastructure” isn’t one of Doug Casey’s renowned 8 Ps of resource stock evaluation, it is a component that Marin Katusa and his team check out before making an energy investment recommendation. You can put their expertise to work for you – risk- free for three months – with a subscription to Casey Energy Report. Details here.]

The Most Important Chart for Gold Investors

Jeff Clark, BIG GOLD

The gold price has been rising steadily for almost a year now, with nary a correction. It fell only 4% last month, and the biggest decline since last July was November’s 5.8% drop. These barely register as “corrections” when one considers we’ve had 18 of them greater than 5% since the bull market began in 2001.

We’re getting used to a persistently rising gold price. Any decline is met with more buying, pushing the price to new highs. But how long can we realistically expect this pattern to continue?

The answer will ultimately be determined by the fundamental factors pushing on the price – more Greece, more money printing, and more economic bad news will all drive gold higher. But even then, have we really said goodbye to big corrections?

History can provide a clue. If we could find a time period within a gold bull market where the price sidestepped major falls, then it might be reasonable to think we’ve entered a period where it will continue steadily climbing. On the other hand, if gold saw big corrections even during, say, a mania, we might need to be on the lookout for them no matter how bullish the factors are today.

Here’s a chart of the corrections that occurred during the final two years of the 1970s mania – one of gold’s biggest parabolic runs in history.

During this historic run, there were seven significant corrections. On average, that’s one every 3½ months and a 10.1% decline. You’ll also see that they were very sharp; four lasted less than ten trading days and all were less than a month. This all occurred in the middle of the mania.

If history is any guide, our correction in January was small, and will be the first of many.

In fact, historical precedent shows that volatility is the norm, even during the Mania Phase of a gold bull market. Big moves, both up and down, are common. I can’t point to a date on the calendar, but sooner or later we’re going to have another downturn, and it won’t be the only one.

This means that great buying opportunities will present themselves regularly. And we show exactly how to capitalize on the next correction in our third annual Summer Buying Guide in the June BIG GOLD. We’re convinced our charts will give you the confidence to buy gold, silver, and precious metals stocks when the weak hands are nervous and selling… Check out this month’s issue risk-free…

Finding Good Stock Picks

By Vedran Vuk

Our policy at Casey Research usually prohibits us from making stock recommendations in our free publications out of respect to our paying subscribers. This restriction is much harder to follow than one might think. After all, we’re constantly researching picks and naturally these companies are often on our minds. Many times, I’ve wanted to write a piece on one of our picks, but couldn’t.

However, since we currently have a special offer for a subscription to The Casey Report along with our 23-CD audio set of the recent Casey Research Summit, I’ll be sharing a few stock picks to advertise the latest issue. To be fair to our subscribers, this is a one-time deal.

Some of these stock picks are a bit unconventional. As a result, I haven’t included the names in the charts; I’ll reveal them toward the end of the article. Unfortunately, investors can be biased; hence I want to make a strong case for these stocks before sharing the tickers. Some of them will certainly surprise you. Let’s get started…

As one can see, Stock 1 has had a tough time until recently. The stock might go down, but there is a powerful resistance line at $25. So, even if the stock doesn’t continue to follow the upward trend, this resistance level will offer support. It would take a major movement to the test this area.

Recently, the trend seems to be breaking down, but we think this is just a momentary pause before the company really starts churning upward on its previous trajectory. Remember: “The trend is your friend.” Since this chart is relatively simple, let’s move on to the next one.

In Stock Chart 2, the trend indicators are extremely clear. While Stock 1 might appear a little shaky, this stock is a sure shot. Look at the almost-perfect connection of the three bottoms in a line. The story is the same for the two peaks. In our opinion, there will soon be a third peak, after which the stock will retrace down as has already happened twice.

The stock should continue pushing upward anyway, but waiting for a minor correction would offer a better entry point. This is the sort of trend dreams – and fortunes  – are made of. Unless there’s another market crash in the next few months, this pick is as good as gold.

We’re particularly proud of identifying this final pick. Our analysts spotted a head-and-shoulders pattern that most others ignored. What threw them off? The left shoulder has a slight anomaly – it doesn’t drop straight down. As a result, most folks ignored this pattern. However, the date of the anomaly was a particularly strong day for the market. If it were any other day, the stock would have fallen straight down and made the head-and-shoulders pattern more obvious to others.

Second, the head isn’t very pronounced, but it is still there. The peak is just barely above both shoulders. Nonetheless, technically speaking, this still qualifies as a head and shoulders. When the stock reached the second shoulder, the decline was predictable(a head-and-shoulders pattern means a fall in the stock price after the last shoulder). As a result, we recommended shorting the stock and made a nice return. Now we’re looking to get back into Stock 3. Our logic will be explained by looking at all three stocks together.

First of all, notice that Stock 1 trades almost inversely to Stocks 2 and 3. This could be a problem, as the gains and losses may offset each other. However, this negative correlation could be a good hedging strategy for more conservative investors. On net, one should still come out on top.

The most interesting relationship is the correlation between Stocks 2 and 3. They both increase at the same time and then retreat together. Then once again, they rise simultaneously. And here’s our reason for investing in Stock 3: an abnormality caused the correlation to temporarily break down. This can’t last for long, and we expect Stock 3 to start moving like Stock 2 once again – upward and fast.

Now it’s time to reveal the identities of these stocks. Unfortunately, they’re not what you think. None of these stocks are Casey Research picks. Here’s a second bombshell: None of these picks are actual stocks. Sorry – I know I’m a few months late for April Fool’s Day.

That’s right. These are not real companies. I used a random number generator and a little math to construct potential paths for nonexistent stocks. The charts above have no patterns – they only appear to have patterns. The stock prices are completely random.

Furthermore, I didn’t pick and choose charts that resemble trends. I simply took the first three charts created by the random generator. Yes, even the head-and-shoulders pattern is randomly generated.

My point is to illustrate the difficulty of finding trends and good stock picks. It takes much more than drawing squiggly (or straight) lines on a chart. Many financial bloggers try to sell themselves as some sort of guru simply based on this technique. Here’s the problem with this approach: How does one tell the difference between real movements in the market and the natural randomness of any stock? Are your “trend lines” following market momentum, or are they following a random pattern of orders entering the market?

Our minds naturally want to see patterns in everything – human learning is inseparably linked to pattern recognition. Unfortunately, not every pattern is a real trend; sometimes it’s just random noise. And this noise can lead us to make grand conclusions based on random data.

There’s only one way to differentiate noise from relevant market information – and that’s knowing the market and the companies inside and out. And that’s exactly what Casey Research does. So while I can’t offer you any free stock picks chosen through a series of hastily drawn lines, I can offer you a free three-month trial of our in-depth research in The Casey Report. With the newest issue coming out today, this is the perfect time to sign up.

Why America Matters

By David Galland

Being comprised as it is of mere mortals, the United States government is entirely prone to missteps and terrible lapses of judgment. Likewise it is susceptible to avarice and panicked response to crisis. Sheer folly and blatant stupidity are also part of its repertoire.

A long thread of actions emanating from such human traits imbued in the U.S. government has brought us to this place – a place where the nation must attend to its own considerable challenges. That means that if you live in one of those desperate places, you can expect no help from these quarters.

That is not the case, however, when it comes to America – which is today perhaps the only real hope you have.

In case you are confused by that statement, I use the word America entirely in the sense that it encapsulates and communicates an idea. That idea is the liberty to live your life without being subjected to undue levels of coercion. My dear partner Doug Casey has often made this point, but it is a point worth repeating in the context of these musings. You see, while there is zero chance of the government of United States coming to the rescue of the world’s downtrodden, there is every chance that America can do just that.

That contention is solidly supported by the uprisings now under way in many Arab countries. The correct way of viewing those uprisings, in my view, is as the very antithesis to the ideas pushed forward by the region’s murderous mullahs. The latter go so far as to use mysticism to get young people to kill themselves and others, with very limited real effect. In sharp contrast, the ideas of the youth rioting in the streets of Cairo, Syria, and elsewhere are firmly rooted in the desire for increased levels of personal freedom – the driving idea of America at the birth of the nation.

Thus, a very good idea is effectively chasing out some very bad ideas.

The good news is that the idea of America is an incredibly powerful and persistent idea, simply because it resonates so deeply with the basic instincts of the human animal. No one likes to be oppressed, to be threatened.

Resisting the usual temptations to spin off on tangents, I’m going to try to jump straight into something of a conclusion here, then get on to other items I wanted to bring to your attention today.

• The World Is Not Perfect. It never has been, and never will be. There will always be pockets of despair, the worst of which are invariably caused by especially corrupt and coercive governments. But it’s only a matter of degree, as it is not an exaggeration in the slightest when I say that the operating principle of all the nation-states could be summed up as, “You belong to us, so do as we say, and pay up when we tell you to, or else!”
   
• Foreign Interventions Are No Answer. For far too many reasons to list here, the idea that one entity can cross a border to bring permanent relief to another – at least on anything other than a very small scale – is a non-starter. Nation building is incredibly difficult and expensive, and is made even more so when there are big cultural differences between the occupiers and the occupied.

  That two of the world’s most powerful countries – the Soviet Union and the U.S. - have broken their picks trying to remake Afghanistan provides the perfect case study. Even in the case of the Libyan opposition, whatever semblance of solidarity of purpose that might have coalesced around the burning desire for freedom – a solidarity that would likely emerged as a key organizing principle in the post-Khaddafi era – is now likely to be diluted and even swept aside by the intervention of the West militarily, and with payoffs to favored groups, to the exclusion of others.
   

• Neither Is Foreign Aid. Shipping billions of dollars in aid to the leadership of a nation as a way of bringing them into line with the donor country’s own interests merely serves to prop up the status quo, skew the local economy, and retard the emergence of more freedom-oriented forms of government. I always found it positively Orwellian that at the height of the Cold War between the U.S. and the Soviets, the U.S. actively propped up the latter with huge supplies of corn and wheat. Absent U.S. food aid, the Soviet state would have collapsed years earlier.
   
• The United States Government, Though Counterproductive, Is Irrelevant. As discussed in my article last week, the United States government has deviated dangerously from the ideals of America, and is now well down the slope of becoming a police state itself. As such, it is providing a negative example to the rest of the world – and not just to the people on the street, but to their governments who look to the United States as something of a compass as to right and wrong.

  The good news is that the idea of America has long ago transcended any domestic degradations of that idea. Like the contents of a benevolent version of Pandora’s box, the idea of America has been released and cannot be put back again.

That, in my firmly held opinion, is why America is important. Of course, history does not move quickly in most regards, and so the idea of America – born over 200 years ago – is still working its way around the globe.

The Arab Spring is only the latest surge of the idea, and it certainly won’t be the last, because the idea of personal freedom is too powerful, too ingrained in the human psyche, not to eventually succeed against the forces that would extinguish it.

Returning momentarily to our “what-if” exercise – the stark reality is that there is little that any of us as individuals can do to effectively help people who find themselves in the iron grip of a particularly bad government.

We can, however, speak out against these governments, in order to shed light on their actions in the hope that other governments and business leaders with influence in those countries will help bring about a change. Failing such changes, sooner or later the people themselves will rise up, as they are now in the Middle East – and as they did in America in 1775 – and force the situation to improve.

Is there an investment angle in this? Absolutely. Countries with an honest judiciary and strong private property rights, that live within their means (which in turn allows them to minimize taxation), and don’t get carried away with regulation and other forms of coercion create powerful economies. Focus your investments in those areas, and it is hard to go wrong.

Of course, few if any countries meet all those criteria, though there are those that get much right – Singapore and Switzerland, to name a couple. Helping to make the point, check out these charts from dear reader Russ that I received today. The top chart shows the price of gold in British pounds and U.S. dollars, and the bottom in Swiss francs. Notice anything?

Thus, watching the news for developments indicating that countries are moving in the right direction on the freedom scale – putting the rights of the individual ahead of the wishes of the masses, or the dictates of a self-serving leadership – can prove a very profitable pastime.

And that, dear reader, is that for this week. Until next week, thank you for reading and for subscribing to a Casey Research service!

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

Recently I’ve been struggling with the question, “Are the PIIGS really priced in to the market?” Sure, the standard wisdom suggests so, and I’ve held this view too. But something just doesn’t seem right. For example, regardless of the bad news, the European stock market stays afloat and the euro manages to stay ahead of the dollar.

No one can deny that the market has at least partially priced in the danger. But when significant European news events don’t even shake the market momentarily, something is wrong. Maybe market participants are really that omniscient to foresee every development, but I’m a bit skeptical.

The market might be mispricing the risk based on a common problem of ascertaining probabilities of several events. While people are pretty good at predicting single events, we are naturally flawed at predicting probabilities of multiple events. If the eurozone has a sudden major crisis, it will likely result from a chain of events.

Let’s do a mental exercise to make the point. What do you think is the probability of the New England Patriots winning the Super Bowl next year? Sure, maybe your number isn’t perfect, but most of us can come up with some probability that makes sense. Now ask yourself, “What is the probability that the New England Patriots will win the Super Bowl and the Boston Red Sox will win the World Series?” This question is much more abstract. While it is easy to make an estimate for one team, the combined probability becomes intuitively confusing.

One could multiply each individual probability to find an answer, but our intuitive thought process doesn’t work this way. Since a chain of events could cause problems in Europe, multiple probabilities become extremely important. What is the probability of a default in Ireland, and in Portugal, and a resulting collapse of German banks? Or what’s the probability of simultaneous defaults in Ireland and Portugal? Furthermore, how correlated are multiple defaults throughout the eurozone? These questions are difficult questions; and in some ways, they are the Achilles’ heel of the whole system.

In my opinion, the market has done a fairly good job of pricing in the major problem areas, such as Spain and Italy. If Spain defaults, there will be a major crisis – almost no doubt about it. This isn’t a scenario where multiple probabilities come into play. However, the market could get sideswiped by an unforeseen chain of events starting from a smaller country.

So, when bad news comes out about Portugal and the market doesn’t move, maybe this isn’t market efficiency but instead a mispricing of a difficult-to-calculate series of low-probability events.

No matter what your math skills in calculating probabilities, investing in this uncertain economic climate can be daunting. A subscription to The Casey Report can help you spot profitable, emerging trends ahead of the crowd – and it’s risk-free for three months. Learn more here.

While on the topic of unforeseen events, let’s get to the rest of the issue and in particular the consequences of the Japanese nuclear crisis spilling over into Germany. Then, I’ll comment on the mixed message coming from the Bank of Canada’s most recent comments on interest rates.

The Future of Atomkraft

By the Casey Research Energy Team

In a dramatic about-face, Chancellor Angela Merkel announced on Monday that Germany will phase out nuclear power completely by 2022, shutting down its nine operational reactors and never restarting the seven reactors that were suspended in the wake of the nuclear disaster at Japan’s Fukushima Daiichi plant.

Germany has struggled with a conflicted yet essential relationship with nuclear power from the start. West Germany built its first nuclear power plant in 1960; since then, the country has come to rely on nuclear reactors for more than 20% of its power needs. But the industry’s growth has not come without opposition. A 1975 fire at the Lubmin plant on the Baltic Coast almost caused a core meltdown. A few years later, the Green Party formed and quickly became a nationwide political force based on their “Atomkraft? Nein, Danke” (Nuclear Power? No Thanks) slogan.

For the next 20 years, the country battled with nuclear waste, first transporting it to medium-term storage facilities because of protests against building a national waste processing facility, then shipping it to facilities in France and Britain. In the early 2000s, protestors regularly blocked waste transports, creating a tension-filled period that culminated in the death of an anti-nuclear activist.

In this context, the coalition government committed to phasing out nuclear power by the mid-2020s. But six years later, in 2006, Chancellor Merkel said it would be a mistake for Germany to turn off its nuclear power plants. Four years later, she strengthened that stance with a plan to run the country’s nuclear plants for an additional 12 years, until 2033. That law passed in the country’s lower house in October 2010.

Five months later, the massive earthquake and tsunami in Japan crippled the Fukushima Daiichi nuclear plant. The world held its breath for weeks as TEPCO struggled to contain the radiation, restore electricity to the site, and repair cooling systems to prevent major core meltdowns. Anti-nuclear protestors in Germany seized on the catastrophe to push the chancellor to reverse her stance. Within days, Merkel suspended the decision to extend the lifespans of the country’s nuclear plants; she also halted operations at the seven oldest plants, which all started up before 1980, for three months.

Now, after a weekend that saw tens of thousands of Germans demonstrate against nuclear power across the country, Chancellor Merkel has cemented both of those decisions. All of Germany’s nuclear reactors will be permanently mothballed by 2022, a stunning policy reversal. The decision makes Germany the first major industrialized power to turn its back on nuclear power since the Fukushima disaster. Germany has 17 reactors, of which nine are currently operational. The seven non-operational plants are the old reactors taken offline in the wake of Fukushima, and one is the Kruemmel plant in northern Germany, which has been mothballed for years due to technical problems. None of the reactors that are currently offline will be reactivated, and the newer, operational plants will be shut down in 2021 and 2022.

Now Germany will have to find new sources to supply 23% of its power needs, which is the load its nuclear reactors carried in 2010. The Merkel-led coalition government says it plans to push the country to cut power usage by 10% by 2020. It will also promote doubling the use of wind and solar power, so that renewables will provide 35% of the country’s power by the time nuclear goes offline.

Merkel’s change of heart follows from a string of disastrous election results for her Christian Democrats (CDU) and their Free Democrat allies, which have been largely blamed on her unpopular pro-nuclear policy. In March, the Greens won control of a CDU stronghold – the populous state of Baden-Wuerttemberg – in a major blow to Merkel’s credibility as a coalition leader. Last year, her party lost its majority in the Upper House after failing to hold on to another highly populated region, North Rhine-Westphalia.

Germany’s power providers were not pleased with the nuclear decision. “The end (of nuclear power) by 2022 is not the date we had hoped for,” said a spokesman from RWE, Germany’s largest power provider. The company also said it will keep “all legal options open,” in reference to the government’s decision to maintain the newly imposed nuclear fuel tax despite enforcing plant shutdowns. The tax was linked to the extension of reactor lives. RWE and Germany’s other main power provider, E.ON, had been threatening to sue the government over the levy even before the nuclear power shutdown plan was announced. And in a separate case, RWE has already filed litigation challenging Germany’s temporary (now permanent) suspension of the seven old power plants following Fukushima.

The German industry association, BDI, said the exit of nuclear power would push energy prices up and make it more difficult to reach emissions targets, as “the shortfall of nuclear power will have to be compensated by coal and gas power stations.” Merkel, however, says Germany’s goal of reducing greenhouse gas emissions by 40% by 2020 also remains in place.

According to Platts, there are some 13GW of thermal energy capacity, comprising mainly hard coal but some lignite and gas, already under construction in Germany. But four out of nine coal power stations and a lignite unit currently under construction are unlikely to be commissioned as originally scheduled in 2011 and 2012, due to a problem with boiler construction. This fact, along with the planned nuclear shutdowns, is prompting talk that the nuclear plan is untenable because it will leave Germany with insufficient power capacity.

The German decision prompted losses for several major uranium producers on Monday. Cameco (T.CCO), the world’s largest pure uranium producer, lost 3.3% while Uranium One (T.UUU) fell 2.7%. However, we do not expect Germany’s decision to impact the uranium story in the long run.

Germany’s 17 reactors account for just 5% of global demand. By comparison, there are 104 nuclear reactors in the United States and 58 in France. And developed economies are not expected to contribute significantly to uranium demand growth – the developing world will play that role. China has 27 reactors under construction, 50 planned, and another 110 proposed. India has 5 under construction, 18 planned, and 40 proposed. Russia has 10 under construction, 14 planned, and 30 proposed. And so on.

We have said it before and will say it again – the long-term fundamentals for uranium are very strong. Demand growth with outstrip increases in supply in the medium term, as the developing world works frantically to provide its billions of citizens with electricity. The Fukushima disaster, and Germany’s reaction to it, will do little to derail this trajectory.

What Germany’s decision will do, however, is further promote renewable energies. On Monday, solar cell makers Q-Cells SE and Solar World gained 8.5% and 8.8%, while wind turbine maker Nordex advanced 13.3%. Those reactionary gains aren’t sustainable, but in turning its back on nuclear power, Germany has given a lift to solar and wind that will last.

A Mixed Message from the Bank of Canada

By Vedran Vuk

Yesterday the Bank of Canada chose to leave interest rates untouched for the sixth consecutive meeting. (Here is the BoC’s press release.) In response to the press release, the CAD made a significant jump upward on the news, and the press release is being reported as a signal of higher rates ahead. I hate to argue with a jump in the market, but I’m not so sure of this position.

Here are my reservations. The BoC notes:

“The possibility of greater momentum in household borrowing and spending in Canada represents an upside risk to inflation. On the other hand, the persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation through weaker-than-expected net exports and larger declines in import prices.”

What could make the Canadian dollar even stronger? Higher interest rates, of course. Hence, this statement doesn’t make me particularly bullish on higher rates. If the Bank of Canada fears an overly strong Canadian dollar, then higher rates don’t necessarily make sense. However, the press release ends with this:

“Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.“

This paragraph is the one getting all the attention. Clearly, it shows some plan for higher rates, but here’s where the confusion comes in. Earlier in the press release, the BoC notes:

“While underlying inflation is relatively subdued, the Bank expects that high energy prices and changes in provincial indirect taxes will keep total CPI inflation above 3 per cent in the short term. Total CPI inflation is expected to converge with core inflation at 2 per cent by the middle of 2012 as excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers and inflation expectations remain well-anchored.”

Here the BoC already expects core inflation of 2 percent by 2012. But the previous paragraph notes that the monetary stimulus will be withdrawn with a goal of 2 percent target inflation. If the central bank already expects 2 percent inflation, wouldn’t this mean the BoC doesn’t need to raise rates?

The last paragraph does offer some flexibility. It notes that 2 percent inflation will be achieved if “inflation-expectations remain well-anchored.” Inflation expectations are difficult to forecast, unless the BoC has already planned higher rates. Perhaps this press release was good news for the CAD, but the message isn’t as clear as some news sources are reporting.

Additional Links and Reads

Taylor Rule Indicates That the Fed Funds Should Be 1% (ZeroHedge)

The Taylor rule is the most simplified equation of what a central bank should be doing given GDP and inflation data. Though it’s extremely simple, the rule does a good job of explaining historical Fed actions. Among mainstream economists, it is a highly regarded tool. Hence, the fact that the Taylor rule suggests higher rates is very significant; Bernanke is certainly aware of this recent development.

Keiser Report: Neo-Feudal Gulag Casino State (Russia Today via YouTube)

Yesterday, I noted the dangers of being overly pessimistic – a case in point might be Max Keiser. Of course, we agree with Max on many things about fiat currencies, but in this Russia Today video, he’s really going over the top. The title Neo-Feudal Gulag Casino State kind of says it all. This wasn’t the only funny and creative line. (The highlights run to about the 13:00 mark). Max has taken doom and gloom to the extreme, and he practically had me rolling on the floor laughing with this video.

Japanese Pensioners Volunteer to Tackle Nuclear Crisis (BBC News)

This article is a touching story of retired engineers volunteering to work on the Japanese nuclear reactors. From their perspective, they have 15 years or so left, and the radiation will take longer to affect them on average. Hence, it makes sense for them to perform this dangerous work. Perhaps this isn’t the most investment-related link, but nonetheless, it’s truly heroic and worth sharing.

That’s it for today. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

With the recent economic crisis still being felt around the country, the hatred for Wall Street is stronger than ever. The standard view seems to assume that Wall Street does nothing, while Main Street breaks its back. In some ways, this is true, and in some ways, it isn’t. In reality, there are two sides to Wall Street.

On one hand, the financial industry is filled with extremely intelligent and hard-working people. For example, those Ph.D. physicists and mathematicians aren’t exactly twiddling their thumbs at work every day. These folks are hired to perform extremely difficult tasks beyond the comprehension of most of us. Furthermore, investment banking is particularly grueling and competitive. For many investment bankers, a 40-hour work week is a joke; they’re sometimes pushing 100 hours a week.

Then there’s the other hand. Not everyone on Wall Street is smart or hard-working. How do these two separate groups co-exist? How can Wall Street have a reputation for intelligence and hard work as well as a reputation for making big bucks for nothing? The central problem is that luck and randomness can lead to great success in the financial sector.

Yes, of the thousands of folks entering the stock market, some will just get lucky. It’s simply a matter of odds. Some individuals without a clue about the market will become millionaires – and of course, they won’t see their fortune as dumb luck. They’ll boast and accept praise about their strategies and “insights.” The same problem occurs within financial companies. Suppose someone started working in a risk-management department around 2002. By October 2008, they had likely received a promotion or two. But they had not been truly tested, since until 2008, the department had not experienced a severe downturn.

By the sheer luck of entering the market in the right year, this person could have risen in the ranks. If the same worker was hired in 2007, his or her career could have been much shorter and less profitable. But there’s another problem that comes with randomness. Suppose a worker was smart enough to predict the housing bubble. In every risk-management meeting since 2003, this employee warned his superiors of the danger. At first, they might listen, but by 2005, this employee would be the laughingstock of the office. His bullish colleagues would be getting the big bonuses and promotions, and our prescient risk manager would only receive ridicule.

Hence, randomness can both reward the fool and punish the forward-thinking employee. Finance is practically the only industry where this happens. With financial markets, a complete imbecile can become extremely wealthy and in the process create a delusion of superior knowledge and skill. In most other professions, this can’t happen. A doctor couldn’t pass medical school by sheer luck. Furthermore, he or she couldn’t become a millionaire by accidentally making a few correct decisions – even the manager at McDonald’s doesn’t get his position by luck. He or she must show some talent at managing a crew.

So what does this have to do with investments? In my opinion, here lies an advantage of investment newsletters. Every month, you can put us to the test. We must constantly inform our subscribers about our opinions on the market. The same isn’t true of many mutual funds. They love to advertise their past returns, but one never gets a clear picture of the philosophy behind those returns. Was the investment plan sound, or were the gains earned by pure luck? If a fund advertises five years of consecutive gains during a boom period, this tells an investor nothing about the fund’s future performance – especially through a bust.

Randomness is an inescapable factor of financial markets. Hence, the industry will always have frauds and million-dollar morons. But with an investment newsletter, our ideas are front and center. Luck is hard to disguise when one must discuss his strategy with investors on a regular basis.

Before we get to the rest of the issue, I want to let everyone know about the 2011 World Resource Investment Conference, held June 5-6 in Vancouver, B.C. Marin Katusa from Casey Energy Report and Louis James from the International Speculator will be speaking. Though Doug Casey is certainly the driving force behind our investment philosophy, he isn’t the only person on the team able to fill a room with investors. If you’re in the area, don’t miss this opportunity.

Now, let’s get to the issue. A few weeks ago, Jeff Clark brought us the Gold Quiz. Now it’s time for the Silver Quiz. Then, I’ll discuss German Chancellor Merkel’s denial of the euro’s problems.

The 2011 Silver Quiz

Jeff Clark, BIG GOLD

CPM Group recently released their 2011 Silver Yearbook, one of the industry’s most comprehensive sources of information on the silver market. Though mostly a reference book, I uncovered some interesting facts that paint a decidedly bullish picture for the metal going forward.

If you’re a silver investor, or are concerned about the recent selloff, you may find the following data very compelling. It provides an inside track on the market and will certainly make us all more knowledgeable investors.

For fun, I put what I read into the form of a quiz. See how many you can get correct…

1)  The #1 driver for silver’s price increase in 2010 was:

a)  Investment demand

b) Fabrication demand

c)  Lower supply

While both fabrication demand and supply rose last year, investors bought 142 million ounces of silver – the third highest level on record, and the highest since 1980. This pushed the price into record territory.

It’s noteworthy that investment demand was higher last year than during the recession year of 2009. This suggests that investors buy silver more out of dollar devaluation and inflation fears than simply due to an economic contraction.

2)  Silver mine production:

a)  Exceeds demand

b)  Matches demand

c) Falls short of demand

Silver produced from worldwide mining totaled 667 million ounces last year – but total demand hit 986 million ounces. Despite the fact that mine production has increased 33% since 1999, it falls far short of supplying the market’s needs.

While scrap coming to market makes up the difference, this gap is one of the more critical issues going forward. The delicate balance between supply and demand will become increasingly precarious as overall demand continues to grow.

3)   Household demand for silver (cutlery, flatware, and candlesticks) hasn’t risen in ten years. Jewelry fabrication is up but a blip. Silver use in photography continues to fall. So, true or false?: Total demand is falling.

False. Industrial use has more than made up the difference from declines in other uses, and is pushing demand to new levels. Since 1999, consumption in electronics has increased 120%. Silver usage in solar panels began in 2000 and is up 640% since then. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small niche, it has already grown sixfold. In fact, new uses for silver are being found almost every day, particularly in the biocide arena, making it increasingly difficult to catalog all its growing applications.

The Silver Institute forecasts that total industrial use of the metal will rise 36% over the next five years, to 666 million troy ounces annually. That’s a lot of silver, meaning this portion of demand – which is roughly 60% of all fabrication – isn’t letting up any time soon.

4) Silver represented what percent of global financial assets at the end of 2010?

a)  1.7%

b)  0.7%

c)  0.07%

d)  0.007%

D. In spite of last year’s record-high prices, silver is, by any account, a miniscule portion of the world’s wealth.

The ratio’s high occurred in 1980, reaching 0.34% of financial assets. Silver as a percentage of global assets would have to grow over 48 times to match the record. It is true that many more paper assets exist today than 30 years ago, but the renaissance in silver will continue to increase its portion of worldwide assets.

5)  The largest manufacturer of silver coins is the U.S. Mint, which sold 34.7 million ounces last year, about 46% of the world total. What country is the second largest?

a) Austria

b) Canada

c) U.K.

d) South Africa

The Austrian Mint contributed 15% of total silver coin sales last year (11.4 million ounces), an increase of 26% over 2009.

Still, the American Silver Eagle rules the global roost. Given how recognizable it is around the world, it’s what to buy if you don’t own enough metal.

6)   Of the following groups of countries, which is increasing silver production and which is in decline?

a) Mexico, Australia, China, Argentina

b)  Peru, U.S., Canada

Countries in group A are increasing production, while to the surprise of many, each one in group B is in decline.

This has direct ramifications for your silver stock investments. Total newly refined supply is expected to surpass one billion ounces for the first time in history this year, so make sure you have some exposure to countries where production is growing.

7)  The average cash cost to produce an ounce of silver from primary silver mines is:

a) $7.16

b) $6.16

c) $5.16

d) $4.16

Of the 30 primary silver mines in the world, average cash cost rang in at $5.16 per ounce (net of byproduct credits). This is almost double 2002 levels. The silver price has risen 650% in the same time frame, however, so margins have risen in spite of higher costs.

The only governments that hold silver in inventory are the U.S., Mexico, and India. How many combined ounces do they hold?

a) 55 million

b) 155 million

c) 255 million

d) 355 million

Only 55 million ounces are estimated to be stored in these three countries. This equals only 5.6% of annual global demand. Governments held approximately 355 million ounces in 1970, but this has diminished largely due to the U.S. decision to stop using silver in its currency in the 1960s and other governments following suit.

No other countries are believed to hold any silver in inventory. Mine production and scrap supply had better keep up, because there is no backup source.

9) China accounts for how much of worldwide mine production?

a) 9%

b) 11%

c) 14%

d) 16%

Chinese mine supply totaled 102.7 million ounces last year, 16% of global production. China is the third largest silver producer, behind Mexico and Peru.

Mine production in China has more than doubled just since 2000, largely due to Beijing’s decision to deregulate the state-controlled market the year before. This trend is certain to continue, due to rising silver prices and the fact that many parts of the country are underexplored. If you don’t own a Chinese silver producer, you’re missing out on some of the most explosive growth around the globe.

10) What is the weakest month of the year for the silver price?

a) January

b) June

c) July

d) October

Summer is usually the most sluggish time of the year for silver, and July is historically the weakest. Got your dealer’s number handy?

It’s clear that the forces underpinning the silver bull market aren’t going away any time soon. Demand is high, but it’s not an anomaly when viewed through an historical lens. Silver has been used as money for over 3,000 years, and the word for “money” in many languages is “silver.”

Meanwhile, our current monetary issues are far from over, won’t be easily resolved, and will take years to play out. Precious metals are proven forms of protection for this environment. Silver, along with gold, is your best defense against unsustainable fiscal imbalances and massive currency debasement, and will be a profit center for years to come.

Learn everything you need to know about silver – when to buy, what to buy, and how the silver bullion squeeze could affect the market. Read it now… in the free 2011 Silver Investing Guide.

Merkel’s Euro Denial

By Vedran Vuk

Yesterday, German Chancellor Angela Merkel noted, “We don’t have a euro problem in Europe. We have more of a debt problem. Financial markets doubt whether some EU states can manage their debt in the long-term.” I have a third culprit for Europe’s problems: economically ignorant and/or deceptive leaders.

The eurozone’s debt is directly linked to the value of the euro. If Greece or any of the other PIIGS default, the euro will suffer as a whole.

Furthermore, Greece’s problems and the bailouts are a direct result of the euro’s existence. If Greece had its own currency, there would be no bailout from the European Union. Instead, the country would print a ton of its own currency. With inflation, Greece would likely monetize part of its debt. In the process, Greek citizens and bond holders would suffer the largest cost of the inflation. With the euro, Greece can’t print its way out of debt – hence the rest of the European Union must bail them out. Instead of Greece suffering the most for its poor decisions, other countries must foot the bill. And in instead of Greece inflating its own currency, the burden is placed on the euro.

This isn’t Greece’s only connection to the euro. Since inflation is currently above the European Central Bank’s target, the ECB must raise rates. However, if it raises rates, the cost of borrowing becomes more expensive across the board from Greece to Portugal. Due to its connection with the euro, the ECB must consider Greece when making a decision about German and French inflation. This is true for no other reason than the shared euro currency.

Of course, Merkel should know better. If her statements didn’t come from ignorance, they certainly came with the intent to deceive. Greece’s problems and the euro are inseparable at this point. And if Merkel’s intent is deception, the problem could be worse than imagined.

Additional Links and Reads

The Vancouver Real Estate Market Roller Coaster (ZeroHedge)

This is a really great, short video simulating Vancouver’s real estate market as a virtual roller coaster. It’s a neat way to show investors that housing prices don’t always increase. In fact, they can be quite a wild ride.

Fed May Signal Balance Sheet Will Stay at Record (Bloomberg)

With QE2 close to finishing, poor economic data continue to come in. Some economists are concerned that this data could impact the Fed’s decisions. However, there’s one big problem: the Fed is practically cornered. Anything resembling QE3 will likely shake the whole market at a point when the dollar is already weak.

Ron Paul Holds a Subcommittee Hearing on Fed Lending (YouTube)

Who did the Federal Reserve send to Ron Paul’s hearing? Two Fed lawyers. Most of these hearings aren’t particularly interesting, but this one is an exception. Here are a few of the highlights:

At about 17:35 in the video, Ron Paul cites a section from the 29,000 pages of released Fed documents and says to the Fed lawyers, “I’m sure you know all 29,000 pages so you know exactly what I’m talking about.” In response, the Fed lawyer just smirks.

Another interesting line is from Congresswoman Maloney; at the 24:45 point, she notes, “I think we all have to remember that we were really on the verge of collapse… We had the Great Recession instead of the Great Depression because of the monetary policy and many of the steps that we took.” Whew! Thank God we only had the Great Recession. Let’s not forget to thank our wise leaders for saving us from the mess we’re still in.

And last, at about 37:00, a Fed lawyer says that the funding from the Federal Reserve came without any losses to the taxpayer. Sure, if you don’t consider inflation a loss, then perhaps the Fed’s actions had no cost.

Fortunately, ignoramus Congressman Lacy Clay kept his mouth shut this time, outside of a pre-written and confusing opening rant. Let me remind readers of his fabulous quote from the first subcommittee meeting:

“The Republican assertion that the Fed’s actions to diffuse the money supply in order to hold down interest rates and lower unemployment will somehow harm our currency is absolutely wrong.”

Along with these highlights, from the 46:30 mark to the end is particularly entertaining. Ron Paul and Walter Jones ask questions regarding loans to foreign banks. They do a really good job of making the Fed lawyers evasive and uncomfortable.

That’s it for today. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Dear Reader,

For today’s edition of these musings, I want to relate some observations arising out of a conversation I had yesterday with constitutional lawyer and monetary expert Dr. Edwin Vieira. I first became acquainted with Dr. Vieira, who holds four degrees from Harvard and has extensive experience arguing cases before the Supreme Court, at our recent Casey Research Summit in Boca Raton, where he spoke on how far off the constitutional rails the nation has traveled.

Because I think what Dr. Vieira said needs to be heard by a wider audience, I arranged for the follow-up interview that I conducted with him yesterday as a special feature for subscribers to The Casey Report. Even so, I wanted to share with all of you dear readers a couple of quick but important observations that came out of our long conversation.

Precedents for a Police State

Dr. Vieira and I covered a lot of ground in our lengthy conversation, most of it related to the U.S. monetary system – its history, nature, and likely fate. But in between the details and analysis of how it is that the nation’s fiscal and monetary affairs have deteriorated to the current dismal state – and how the global sovereign debt crisis is likely to be resolved – a couple of deeply concerning truths emerged.

Concerning because, taken together, these truths have set the stage for a full-blown police state.

The first of these two truths has to do the nature of today’s money. To set the stage, I present the following excerpt from Dr. Vieira’s paper A Cross of Gold related to the original Federal Reserve Act.

Section 16 of the Act provided that:

Federal reserve notes, to be issued at the discretion of the Federal Reserve Board for the purpose of making advances to Federal reserve banks are hereby authorized. The said notes shall be obligations of the United States, and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in gold on demand at the Treasury Department of the United States, or in gold or lawful money at any Federal reserve bank.

Observe: From the very first, Federal Reserve Notes were denominated “advances” and “obligations”—that is, instruments and evidence of debt. True “money”, however, is the most liquid of all assets, not a debt that might be repudiated, and certainly not a debt that has been serially repudiated.

And if Federal Reserve Notes were from the start to be “redeemed in gold or lawful money”, they obviously were never conceived to be either “gold” or “lawful money”. So, because by definition the only “money” the law recognizes is “lawful money”, by law Federal Reserve Notes were never (and are not now) actual “money” at all, but at best only some sort of substitute for “money”.

The monetary conjurers’ trick has been, slowly, steadily, and stealthily, to reverse this understanding in the public’s mind. That is, to make the substitute pass for the real thing, and then remove the real thing from the operation.

This subterfuge was not overly difficult to put over. After all, in the term “redeemable currency”, which is the noun and which the adjective? When people deal with a “paper currency redeemable in gold”, the natural uninstructed inclination is to treat the paper currency as “money” and the gold as something else. The paper currency, as the saying goes, is merely “backed” by gold—but of course is not itself gold. And because the currency is not itself gold, the money-manipulators can remove the gold “backing” farther and farther into the background, without affecting the nature of the paper as “currency” (at least nominally).

Thus, a “redeemable currency” can be converted into a “contingently redeemable” or “conditionally redeemable” currency, through temporary suspension of specie payments (as happened repeatedly during the Nineteenth Century); and then into a full-fledged “irredeemable currency”, through permanent suspension of specie payments, as with Federal Reserve Notes after 1933 domestically and 1971 internationally.

Yet, to the average citizen (whose most serious liability is mental inertia), even though a paper currency’s promise of redemption has been dishonored, it nonetheless remains “currency”.

Thus one grasps that the so-called “right to redemption” attached to any paper currency is actually a liability, inasmuch as it exposes the holders of that currency to repudiation, because they possess only the paper, not the gold.

Even in the best of times, the holders of redeemable paper currency are not economically and politically independent. Rather, they depend upon the honesty and the competence of the money-managers.

This is why America’s Founding Fathers, realists all, denominated redeemable paper currency as “bills of credit”. They knew that such bills’ values in gold or silver always depended upon the issuers’ credit—that is, ultimately, the issuers’ honesty and ability to manage their financial affairs.

The unavoidable trouble with “bills of credit”, though, is that they can (and usually do) turn out to be “bills of discredit”, when the holders discover that the money-managers are dishonest and incompetent—or worse, as is the situation today, highly competent at dishonesty. Then the holders of the paper currency (if they are sufficiently astute) realize how unwise it is to allow the gold to be held by the very people with the greatest incentive, and the uniquely favorable position and opportunity, to steal it.

But when the money-managers refuse to redeem their currency, what can the holders of that currency do to protect themselves? Well, what were they able to do in 1933 and in 1971? Nothing. If the holders of Federal Reserve Notes had enjoyed an effective, enforceable “right” to the gold that the Federal Reserve System and the Treasury of the United States promised to pay in redemption of those notes—that is, if the currency had been “redeemable” in the only meaningful sense that redemption was absolutely assured as a matter of law and especially fact—the gold seizures of 1933 and 1971 would never have happened.

Thus, the ostensibly “redeemable” character of paper currency of the pre-1933 and pre-1971 type did not protect the holders of that currency. Instead, it turned out to be the very device used to deceive, defraud, divest, and dispossess them of gold—proving in the most palpable manner that a society’s acceptance of “redeemable currency” is the product of confusion and the invitation to inevitable economic and political disaster.

(Ed. Note: You can read the entire text of A Cross of Gold at the GATA website. Here’s a link.)

Before going on, a caveat that I’ll be paraphrasing Dr. Vieira going forward, sharing my interpretation of his views, giving rise to the possibility that I may miss an important detail or nuance that would otherwise be revealed in the full interview.

In our conversation, Dr. Vieira ticked off eight specific ways in which the current monetary system is unconstitutional. While I won’t go into the specifics here, the important thing to understand is that, as currently operated, the federal government has managed to manipulate things to avoid any constitutional restrictions on its ability to spend.

This, of course, gives the government free rein to reward favored voting blocs with expensive social programs, buy fleets of limousines, launch expensive overseas adventures, bail out well-connected donors, and otherwise spend the country into ruin.

To understand why this is so important as a precedent to the evolution of fascism, view the matter in reverse by considering how different things would be if the constitutionally mandated requirement that the government’s currency be redeemable in good money – gold or silver – was still enforced. In that case, the government’s ability to spend would be effectively limited by what it collected in revenues. That, in turn, would have greatly curtailed its ability to grow into the bloated juggernaut it has.

In other words, the American ideal of a limited government would have been hard wired.

As it stands, though, exactly the opposite has been allowed to evolve – unchallenged by anyone, including the Supreme Court. Why has the nation’s highest court chosen not to tackle this clear breach of the Constitution? According to Dr. Vieira, it is likely because if they were to void the current system as being unconstitutional, they would effectively blow apart the U.S. and global economy. But as they have no authority to even suggest an alternative system, they are faced with the reality that while they have the power to do great damage, they have no power to cushion the blow. And so, the Supreme Court does nothing.

As a result, the ability of the federal government to continue its insane spending and rolling out new initiatives designed to win over voters continues with no legal restraints – the latest example being the health-care initiative. Put another way, in cahoots with the Fed, the federal government is able to wage war, bail out the banks, foster socialism, and otherwise bankrupt the nation – to do whatever it wants – largely thanks to its continued operation of an unconstitutional monetary system.

It Gets Worse…

The second fundamental truth is that the Supreme Court has been a co-conspirator and instrument of the government’s degradation of individual liberty.

Dr. Vieira and I spent a fair amount of time on this topic – of how the nation’s highest court could let stand the egregious excesses of recent decades; the Patriot Act, Guantanamo, institutionalized torture and renditions, domestic spying, eminent-domain abuses, warrantless searches, etc., etc. In his view, there can be only one of two reasons that the Supreme Court has been so accommodating – one is that the justices are incredibly incompetent, and the other is that they are working within the context of an unseen agenda.

Ruling out the first, his final conclusion is that they are operating with an unseen agenda in mind. In his view, that agenda revolves around the rising potential for widespread social unrest emanating from the nationwide monetary Ponzi scheme. Doing its part to prepare, the Supreme Court has been establishing the precedents necessary for the government to cope with that unrest.

Too radical a thought? Returning to Dr. Vieira’s point – ask yourself how else to explain the Supreme Court’s actions. Are they collectively of low intelligence, or otherwise so stupid as to be unable to understand the Constitution? Or do they now view the Constitution and the Bill of Rights as dead letters, freeing them up to respond to the government’s overheated demands for new and previously unimaginable new “emergency” (read “fascist”) powers?

Is there an alternative explanation?

On this general theme, Dr.  Vieira correctly points out that, in order for a fascist state to exist does not require the government to actually arrest anyone – but only that they can arrest anyone. Do you think you broke a law over the past week? I can assure you that every one of you dear readers broke a lot of laws. Sure, you may not have realized you were breaking a law – but, as the old saying goes, “Ignorance of the law is no excuse.”

The Stage Is Set

Unrestricted in its growth by any constitutionally mandated limits on its ability to create and manipulate money – the official currency now being nothing more than IOUs redeemable in nothing more tangible than coins made out of base metal alloys with inflated face values – and supported by a Supreme Court that has unequivocally demonstrated a willingness to ignore or sign off on egregious tramplings of the Constitution, the stage is set for the U.S. government to evolve into something far more dangerous on the domestic front.

All it requires now is a triggering event, and it would be naïve to think that such an event won’t occur. Maybe not tomorrow, maybe not this decade – but when it inevitably does, the federal government already has all the precedents it needs to do “whatever it takes.” This absence of legal restrictions on its actions is the very foundation of fascism.

When I asked Dr.  Vieira how the nation has progressed on a scale from 1 to 10 towards becoming a police state, with 10 being a full-blown version, he put us currently at about 7.

There really is no investment angle to be derived from this situation – well, at least nothing new. Owning tangible investments that will hold up in the face of a continued currency debasement continues to make sense – but with the caveat that FDR’s unconstitutional gold confiscation of the 1930s was let stand and there is zero reason to think that the accommodating Supreme Court wouldn’t go along with it again. One would hope to see straws in the wind before any moves toward confiscation would begin. Until those straws start flying, the precious metals – as well as other tangibles – belong as part of your portfolio.

And once again, I’ll mention the importance of politically diversifying your life and your money as one of the few steps you can take to avoid the serious risk that comes from being “all in” in a single jurisdiction.

(If you haven’t done so, check out www.InternationalMan.com – a new site that is picking up where Doug Casey’s book The International Man left off. It may be of some use and interest.)

In my Friday column last week, I touched on the idea that one’s perspective on the world can be heavily influenced by the media one exposes oneself to… negative begetting negative and so forth.

That makes it kind of ironic – an irony I picked up on myself while writing that article, and was mentioned by several readers – that I often write on what might be considered gloomy topics.

To which I would respond, as I did to one dear reader, that if you are sitting in a theater and see a fire breaking out, would you fail to make others aware of it, because you didn’t want to interrupt their entertainment?

Well, we can see a fire blowing up – the kindling for which has been piled up deep by a series of out-of-control governments. Unless and until there is something akin to an “American Spring.” this fire is going to spread and consume even more of the accumulated wealth of the broader public – and maybe worse.

Do what you can to protect yourself and your families – then get on with your life. You may not be able to do much about the bigger-picture trend, but you can certainly take steps on a personal level to mitigate the ill effects.

Hope for the best, plan for the worst… but then live life to the fullest.

Kindle vs. iPad – Part Two

Last week I wrote a rather hurried comparison of the Kindle vs. iPad, coming to no firm conclusion other than I found the iPad more cumbersome as an electronic book reading device.

I heard from a number of dear readers on the topic, most (correctly) pointing out that I was thinking of the iPad in the wrong way. Of those comments, the following from dear friend and Casey subscriber, producer/director/artist Sadia Sadia and her partner sound artist Steven W. Tayler were the most insightful, causing me to view my iPad with a whole new perspective, and appreciation…

The first thing we would say is that you’re missing the point with what an iPad is.

You’ve touched on two really basic things (book readers and word processing). What you’re forgetting that it can host your music and all your photographs, as well as manage your email. You’re also only talking about streaming videos, whereas with the iPad you can load a film (not stream) to watch whenever/wherever.

Using it with a keyboard is pointless, it defeats the whole point of the device. If you want a keyboard, buy a laptop. It would be a terrible choice for a student as the interconnectivity is completely different to a laptop (i.e. Firewire, USB, Ethernet, etc. do not exist on an iPad, and you cannot hook up peripherals!). It doesn’t replace a laptop.

What you’re also missing is the point that the device is your ‘hub’. On 3G you can run your life from the side of a motorway (without getting out your external keyboard).

Being a Mac, the total integration between iPhone, iPad, laptop, and desktop is second to none.

Steve also has remote controls for a number of programmes that run on his computer, which he can control via Wifi on the iPad. Theatre and concert engineers use these things to control their lighting and sound rigs while moving around their venues. Try lugging a laptop around to do this.

Also, it is a superb presentation device for portfolios of photographs, visual works, or mixed media (integrating still and moving image for presentation). So much cleaner and hipper than showing your work on a laptop.

And what about apps? There’s a whole world. You haven’t mentioned any of that – all you talked about were the two things you like doing – reading and word processing. You don’t need an iPad for that!

This is a very deep device – it sounds like you have been trying to use it to read books and write documents – which is somewhat missing the point.

Personally, I hate the Kindle. I don’t care for the build quality and I really dislike the PC-ish interface. But then I don’t use a PC, and never have – I’m a hard-core Mac user of over twenty years’ standing.

Our feeling is that your piece is biased – like comparing apples and roller skates

To which I reply, I stand corrected! Though I will still use the Kindle now and again for reading, I am making it something of a personal mission to really understand the iPad’s capabilities. If you know of any especially cool apps or functions you think I might appreciate, drop me a note at david@CaseyResearch.com. Thanks!

[Ed. Note: While I may be a technology neophyte, that is very much not the case with Alex Daley and the research team behind Casey Extraordinary Technology, which is dedicated to separating the investment winners from the losers in the tech wars. Check out all their current best picks, risk-free – details here.]

Friday Funnies

We start with an oldie but goodie… and a metaphor for government’s proclivity for repeating the same mistakes…

Moose Hunters

Two hunters –Stosh and Stan – got a pilot to fly them into the Canadian wilderness, where they managed to bag two big bull moose.

As they were loading the plane to return, the pilot said the plane could take only the hunters, their gear, and one moose.

The hunters objected strongly, saying, “Last year we shot two, and the pilot let us take them both. And he had exactly the same airplane as yours.”

Reluctantly the pilot, not wanting to be outdone by another bush pilot, gave in and everything was loaded.

However, even under full power, the little plane couldn’t handle the load and went down, crashing in the wooded wilderness.

Somehow, surrounded by the moose, clothing, and sleeping bags, Stosh and Stan survived the crash.

After climbing out of the wreckage, Stosh asked Stan, “Any idea where we are?”

Stan replied, “I think we’re pretty close to where we crashed last year.”

The Talking Dog

There is a good chance you’ve seen this video already – according to the YouTube count, it has received over 35 million views – but it is worth another view, because it is really well done. A classic.

Click on the image to play.

The Prince of Gaffes

Prince Philip of England is now 90 years old, and a real hoot when it comes to his propensity for spouting off politically incorrect views at particularly inappropriate times. Here’s a link to an article from The Independent entitled Ninety Gaffes in Ninety Years, but to give you a sense of the man and his gaffes, here’s a sampling.

“Deaf? If you’re near there, no wonder you are deaf.” Said to a group of deaf children standing near a Caribbean steel drum band in 2000.

“If you stay here much longer, you will go home with slitty eyes.” To 21-year-old British student Simon Kerby during a visit to China in 1986.

“You can’t have been here that long – you haven’t got a pot belly.” To a British tourist during a tour of Budapest in Hungary. 1993.

“How do you keep the natives off the booze long enough to pass the test?” Asked of a Scottish driving instructor in 1995.

“It looks as though it was put in by an Indian.” The Prince’s verdict of a fuse box during a tour of a Scottish factory in August 1999. He later clarified his comment: “I meant to say cowboys. I just got my cowboys and Indians mixed up.”

“A few years ago, everybody was saying we must have more leisure, everyone’s working too much. Now that everybody’s got more leisure time they are complaining they are unemployed. People don’t seem to make up their minds what they want.” A man of the people shares insight into the recession that gripped Britain in 1981.

“It was part of the fortunes of war. We didn’t have counsellors rushing around every time somebody let off a gun, asking ‘Are you all right – are you sure you don’t have a ghastly problem?’ You just got on with it!” On the issue of stress counseling for servicemen in a TV documentary marking the 50th Anniversary of V-J Day in 1995.

“It’s a vast waste of space.” Philip entertained guests in 2000 at the reception of a new £18m British Embassy in Berlin, which the Queen had just opened.

“If it has four legs and it is not a chair, if it has got two wings and it flies but is not an aeroplane and if it swims and it is not a submarine, the Cantonese will eat it.” Said to a World Wildlife Fund meeting in 1986.

“Do you know they have eating dogs for the anorexic now?” To a wheelchair-bound Susan Edwards and her guide dog Natalie in 2002.

“If you travel as much as we do you appreciate the improvements in aircraft design of less noise and more comfort – provided you don’t travel in something called economy class, which sounds ghastly.” To the Aircraft Research Association in 2002.

“Get me a beer. I don’t care what kind it is, just get me a beer!” On being offered the finest Italian wines by PM Giuliano Amato at a dinner in Rome in 2000.

Home Prices vs. Home Values

By Charles Vollum

[Ed. Note: I have often said that our readers are the best people in world, a view that is reinforced in my mind at every Casey Research Summit, or during the events held  biannually at the rapidly emerging community of La Estancia de Cafayate – where I first met Charles Vollum, with whom I am proud to now share a property line. An incredibly interesting individual with a wide range of interests – one of which is reflected in the work he does for his website, www.pricedingold.com. He wrote up the following on June 1, in response to the latest press release on the Case-Shiller Home Price Index.]

Yesterday, Standard and Poors issued the latest update to its Case-Shiller Home Price series.

The press release begins, “Data through March 2011 … show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010.”

Then comes the key statement: “Nationally, home prices are back to their mid-2002 levels.”

This means that on the average, a home in the U.S. that was purchased for $200,000 in mid-2002 would have sold for about the same price two months ago. So after owning the home for almost nine years, you could sell it and break even – no capital gain nor loss, and all of the cash you originally invested would be returned to you.

But the dollars returned are not the same dollars that were invested! The U.S. dollar of mid-2002 could buy a lot more than the spring 2011 model… A barrel of crude oil cost $27 then, but about $100 now. A gallon of gasoline was $1.43 then, but $3.90 now. To purchase a shopping basket of food totaling $88 in mid-2002 would now ring the register for $232. An ounce of gold was around $315 back then, but over $1400 at the end of Q1 2011!

So that house may have the same dollar price, but it does not have the same value.

The price distortions caused by a depreciating currency play havoc with investors’ efforts to decide what price to pay for assets, as well as making it difficult to tell when to sell. After all, our goal isn’t just to build an account with big numbers in it – we want to be able to afford a better life for ourselves and our families.

One approach to solving this problem is to price things using a more stable form of money – one that cannot be created and destroyed at the whim of a central bank. Gold.

In July of 2002, one dollar would buy 100 mg of gold – a penny was a milligram. In March of 2011, one dollar bought only 22 mg of gold. – and at the end of May, just 20 mg. Some things are more expensive today in gold terms, but many are not. For instance, it takes less gold to buy a barrel of crude today than in 2002 (2.0 grams instead of 2.7 grams), but it takes a bit more gold to buy a pound of coffee (54 mg instead of 50 mg). And yet, both coffee and crude oil are several times more expensive in dollars than they were nine years ago. The same goes for silver, food, copper, gasoline, postage, college tuition… almost anything you can think of.

Except houses.

Using gold as the standard of measure shows what is really happening with home values:

Home values haven’t just rolled back to their 2002 levels – they have been making new all-time lows every quarter for the last year!

This chart by itself can’t tell you whether it is time to buy a house, or if it is too late to sell that second home. Prices could keep falling, or they could stabilize and begin to recover; that will be determined by the supply of homes on the market, the needs of buyers, and the strength of their finances.

One thing is certain: in the aggregate, home values will never go to zero. People need to live somewhere, and real property has real value.  But in the coming months, the dollar price of housing may stabilize, and even rise if QE3 is launched or massive amounts of new fiat money are created to bail out Europe or to contain some other emerging crisis – even as real values are stagnant or falling. Take a look at 2001-2006 and 2009-2011 in the chart above for examples of this.

The key to understanding what’s really happening to home values, and other prices, is to watch them priced in gold.

That’s It For This Week!

That’s it for this week. I promise that when I next appear in these pages next Friday, I will go out of my way to be positively brimming over with optimism and good news.

But this week I will leave you with a stunning example of just how dysfunctional the relationship between the government and the governed in the United States has become. The following occurred May 30, 2011:

Police and firemen in Alameda, California watched a man drown on Monday after realizing they did not have proper certifications for water rescue, leaving them open to possible lawsuits if they attempted to save him.

The drowning victim, 53-year-old Raymond Zack, was apparently suicidal, according to a report from the scene. He waded out about 150 yards into cold waters off Crown Beach in Alameda and took about an hour to drown himself.

A crowd of about 75 gathered to watch the bizarre scene, which saw police and firemen just standing at shoreline watching helplessly. After the man had drowned, authorities couldn’t even go into the surf to retrieve the body. They instead recruited a passer-by for the job.

City officials reportedly blamed the incident on budget cuts and said they would have a discussion about why Alameda, an island city, does not have proper authorization to rescue people from the waters surrounding it.

You can read the story, and watch a new video on the incident, by following the link here.

But you have to ask yourself: Under what possible construct could individuals trained to save lives – and at great taxpayer expense, I might add – stand by and simply let a man drown? I can’t give you an answer, so I won’t even try.

Signing off, I will leave you on a lighter note – with another quip from my new favorite comedian, Prince Philip:

“All money nowadays seems to be produced with a natural homing instinct for the Treasury.”

And with that, I thank you for reading and for being a Casey Research subscriber.

David Galland
Managing Director
Casey Research

Dear Reader,

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

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

Steve Austin Revisited – Part II

By Doug Hornig

When we left Steve in Part I, he was running around on bionic legs and feet while wired to his computer. Today we’ll restore Steve’s hearing, sight, and voice. In Part III we’ll get to the heart of the matter and examine the ultimate warrior.

Restoring Light and Sound

The ability to bring sight to the blind and hearing to the deaf has long been high on medicine’s wish list. We’re getting there – starting with cochlear implants.

A cochlear implant is not a true robotic ear. It’s a small but complex electronic device with an external part that sits behind the ear, and a second part that is surgically placed under the skin. It consists of: a microphone, which picks up sound from the environment; a speech processor, which selects and arranges sounds picked up by the microphone; a transmitter and receiver/stimulator, which receive signals from the speech processor and convert them into electric impulses; and an electrode array that collects the impulses from the stimulator and sends them to different regions of the auditory nerve.

The result is not the same as hearing. In fact, the brain has to be retrained to make any sense of the messages it’s receiving. That takes time and effort, and involves a significant amount of therapy.

Adults who have lost all or most of their hearing later in life can benefit from cochlear implants, but sometimes don’t. They have to learn to associate the signal provided by an implant with sounds they remember. That can be difficult, and some will never regain the ability to understand speech solely by listening through the implant, without requiring any visual cues.

Those deaf from birth can fare better if they receive implants early, during the critical period when children typically learn speech and language skills. Implantation is most common in the 2-6 age group, but the FDA has set the age of eligibility as low as 12 months for one type of cochlear implant.

The vast majority of the data flowing to the brain comes in through the eye, however. So you would expect the restoration of sight to have received top priority among researchers. And you’d be right. Research groups all over the world have been working furiously on it for decades.

You might also expect the task to be extraordinarily difficult. Right again. There is, as yet, no bionic eye. – not even for normal vision, much less the kind of enhancements enjoyed by Steve Austin. But retinal implants are here. Though they’re not yet good enough for commercial production, they’re getting there.

Challenges are large and diverse, but mostly have to do with the basic function of a retinal implant. It is intended to be an artificial retina, i.e., simply designed to take over the role played by the photoreceptor cells in a biological eye. This means that it will be a solution for only a limited number of problems Specifically, that would include late-blind people who have particular diseases that lead to rod and cone degeneration – such as retinitis pigmentosa or age-related macular degeneration – but that leave the neural connections from the retina to the brain mostly intact and in the proper positions for making contact with implanted electrodes.

Others are less fortunate. For example, those blind from birth –, who have never established the neural pathways required to transmit visual images to the brain –, cannot be helped. And there are questions as to whether implants are likely to benefit people with such causes of later-stage blindness as diabetic retinopathy, severe optic atrophy, retinal detachment, glaucoma, stroke, or trauma.

Then there are potential hardware problems. This technology  is still very new and likely to yield biocompatibility problems for a long while. Inserting a foreign object into the eye could lead to any number of undesirable side effects, such as creating retinal microaneurysms, damaging retinal capillaries, bleeding, and causing retinal detachment.

Also: What’s the safety limit for current density in the eye? Can the retina endure electrical stimulation for many years without damaging it beyond repair? Since chronic neural stimulation by electrodes can damage or kill neurons, might they eventually destroy the links to the brain? And finally, could microchip implants increase the long-term risk of cancer through foreign body reactions?

There aren’t any definitive answers. But the range of problems means that different researchers are following different paths. One group, the Boston Retinal Implant Project, abandoned earlier attempts to attach a computer chip directly to the retina, because of the risk of damage. In their newer versions, the chip is attached to the outside of the eye, and the electrodes are implanted behind the retina. Such a chip will not restore normal sight, but it could help blind people more easily navigate a room or walk down a sidewalk, and might even allow the ability to recognize faces, which would be a significant social leap forward.

At the same time, Retina Implant AG, a company based in Reutlingen, Germany, is going for the whole enchilada. Their setup looks like this:

In March of last year, Retina Implant AG announced the results of the first human trial of its product, on eleven individuals who had lost their sight due to retinitis pigmentosa. According to the company, implantation was successful in all patients without any adverse events.

Patients reported with extraordinary results. Said one recipient: “When the microchip was turned on, I immediately was able to distinguish light from dark and see outlines of objects. As I got used to the implant, my vision improved dramatically. I was able to form letters into words, even correcting the spelling of my name. I recognized foreign objects such as a banana and could distinguish between a fork, knife, and spoon. Most impressively, I could recognize the outlines of people and differentiate heights and arm movements from 20 feet away.”

For safety’s sake, the experimental implants were removed after 1-3 months, but one study participant was so happy that he refused removal and now has been carrying the implant for four years.

Yet another approach involves no surgery at all. Instead, a website called Seeing With Sound offers The vOICe – free software that converts images into sound. The idea is that a webcam mounted on a pair of glasses maps the user’s visual field, sending signals to a backpack computer that translates objects into tones of different pitch, volume, and placement in space. The user can then be trained to interpret these sounds as objects, thereby in a sense “seeing” them.

Sight from sound… Well, why not? Bats do it. Dolphins do it.

Where this technology might eventually lead is up for grabs – the website even playfully asks, “Is it an augmented reality game or a serious tool?” – but there’s no doubt it can deliver some impressive results. Watch a woman, blind from birth, learn to read and write.

Speaking Out

Many readers may associate voice synthesizers with their most famous user, Stephen Hawking. The famed astrophysicist types commands on his keyboard and tinny words come out of a speaker.

The tech actually wasn’t bad for its day. By storing key words, phrases, and thoughts, for example, the software allowed Hawking to deliver lectures with a minimum number of keystrokes. But the process remained largely mechanical, and the result would never be confused with the product of Hawking’s own vocal cords.

Today, things have changed in both areas.

First, voice synthesizers have gotten very sophisticated. One can order up any number of different accents and even, in some cases, get one’s own voice back. That’s what Roger Ebert did.

As any film fan knows, Ebert is a chatty fellow. He’s made a living by talking about the movies. Thus, when he permanently lost his ability to speak, after a battle with jaw cancer in 2006, it must have been particularly galling.

But whether or not you agree with his celluloid opinions, you’ll have to admit that Ebert is one tough cookie. Though numerous surgeries left him with a misshapen face and no voice, he’s kept right on truckin’, using text-to-speech software to communicate, even appearing on the Oprah Winfrey show to talk about the Oscars back in March.

It was on Oprah that he debuted – to his wife as well as the world – the latest in synthesizer innovations. Working from past TV shows, engineers have been able to encode the nuances of Ebert’s former real voice. It doesn’t sound perfectly human yet, but it’s a close approximation. And best of all, it’s recognizably Roger.

No doubt hearing one’s silenced voice again is a blessing, but advances in this field have hardly been limited to better translation programs and more lifelike synthesizers. Some scientists are unlocking the secrets of communication by digging into our own natural hardware, the human brain.

Frank Guenther is a professor of cognitive and neural systems at Boston University. For more than two decades, Guenther has worked at developing a neural model of speech, in the hope that he could create decoder software to translate thoughts into words. Early efforts were disappointing, but by the late 1990s, functional magnetic resonance imaging (fMRI) technology allowed him to compare the model’s predictions to actual brain scans of people speaking words or syllables under particular constraints, such as restricted jaw movement or distorted auditory feedback.

A few years later Guenther and postdoctoral research associate Jonathan Brumberg teamed up with Phil Kennedy, founder of the company Neural Signals Inc. and a pioneer in brain-computer interface research with twenty years’ experience implanting electrodes in animal and human brains. The group set out to prove that their subject – a young Georgia man who had been left totally paralyzed (except for eye movements) by an auto accident, a condition known as “locked-in syndrome” – could learn to speak again, using only his thoughts.

Long story short, a tiny electrode implanted in the subject’s cortex picks up activity from forty neurons associated with speech. These signals are transmitted wirelessly to a computer, which decodes them and turns them into sounds. And it works.

The results have not been stunning. The formation of words and sentences is still years away. But the young man has been able to think into existence a few of the basic building blocks, sounds, and hear them come out of a speaker. You can read the whole story here.

But what if someone can’t speak, yet is not paralyzed? An Illinois company, Ambient Corp., decided to see what they could do by attacking the problem the other way ‘round, and came up with a device called the Audeo. Instead of detecting neural speech impulses in the brain, the Audeo monitors those signals’ destination.

To use it, a sensor is placed on the neck, over the laryngeal muscles, and secured with an elastic band. The sensor is hard-wired to a control module that clips to the wearer’s shirt. And that, in turn, amplifies and broadcasts a signal to a computer, mobile phone, or other device. With training, the user can learn to silently sound a word and trigger a response in his musculature that corresponds to that word in a way the computer can recognize.

One application: The voiceless phone call!

You can see Ambient’s CEO demonstrate the device in phone mode in this clip from the 2008 TIDC conference. We can’t help but hope that one day the Audeo will not only assist those who really can’t speak, but will be a boon for the rest of us as well, both by allowing us to conduct private phone conversations in public places, and by delivering us from the annoyance of having to listen while other people shout into their cells.

That’s it for Part II. Stay tuned for our final installment in this series, soon to come.

[As Doug’s series demonstrates, there’s plenty of reason to be optimistic about the tech sector. Let Casey Extraordinary Technology help you profit from the amazing developments happening today, risk free. Details here.]

The Future of Atomkraft

By the Casey Research Energy Team

In a dramatic about-face, Chancellor Angela Merkel announced on Monday that Germany will phase out nuclear power completely by 2022, shutting down its nine operational reactors and never restarting the seven reactors that were suspended in the wake of the nuclear disaster at Japan’s Fukushima Daiichi plant.

Germany has struggled with a conflicted yet essential relationship with nuclear power from the start. West Germany built its first nuclear power plant in 1960; since then, the country has come to rely on nuclear reactors for more than 20% of its power needs. But the industry’s growth has not come without opposition. A 1975 fire at the Lubmin plant on the Baltic Coast almost caused a core meltdown. A few years later, the Green Party formed and quickly became a nationwide political force based on their “Atomkraft? Nein, Danke” (Nuclear Power? No Thanks) slogan.

For the next 20 years, the country battled with nuclear waste, first transporting it to medium-term storage facilities because of protests against building a national waste processing facility, then shipping it to facilities in France and Britain. In the early 2000s, protestors regularly blocked waste transports, creating a tension-filled period that culminated in the death of an anti-nuclear activist.

In this context, the coalition government committed to phasing out nuclear power by the mid-2020s. But six years later, in 2006, Chancellor Merkel said it would be a mistake for Germany to turn off its nuclear power plants. Four years later, she strengthened that stance with a plan to run the country’s nuclear plants for an additional 12 years, until 2033. That law passed in the country’s lower house in October 2010.

Five months later, the massive earthquake and tsunami in Japan crippled the Fukushima Daiichi nuclear plant. The world held its breath for weeks as TEPCO struggled to contain the radiation, restore electricity to the site, and repair cooling systems to prevent major core meltdowns. Anti-nuclear protestors in Germany seized on the catastrophe to push the chancellor to reverse her stance. Within days, Merkel suspended the decision to extend the lifespans of the country’s nuclear plants; she also halted operations at the seven oldest plants, which all started up before 1980, for three months.

Now, after a weekend that saw tens of thousands of Germans demonstrate against nuclear power across the country, Chancellor Merkel has cemented both of those decisions. All of Germany’s nuclear reactors will be permanently mothballed by 2022, a stunning policy reversal. The decision makes Germany the first major industrialized power to turn its back on nuclear power since the Fukushima disaster. Germany has 17 reactors, of which nine are currently operational. The seven non-operational plants are the old reactors taken offline in the wake of Fukushima, and one is the Kruemmel plant in northern Germany, which has been mothballed for years due to technical problems. None of the reactors that are currently offline will be reactivated, and the newer, operational plants will be shut down in 2021 and 2022.

Now Germany will have to find new sources to supply 23% of its power needs, which is the load its nuclear reactors carried in 2010. The Merkel-led coalition government says it plans to push the country to cut power usage by 10% by 2020. It will also promote doubling the use of wind and solar power, so that renewables will provide 35% of the country’s power by the time nuclear goes offline.

Merkel’s change of heart follows from a string of disastrous election results for her Christian Democrats (CDU) and their Free Democrat allies, which have been largely blamed on her unpopular pro-nuclear policy. In March, the Greens won control of a CDU stronghold – the populous state of Baden-Wuerttemberg – in a major blow to Merkel’s credibility as a coalition leader. Last year, her party lost its majority in the Upper House after failing to hold on to another highly populated region, North Rhine-Westphalia.

Germany’s power providers were not pleased with the nuclear decision. “The end (of nuclear power) by 2022 is not the date we had hoped for,” said a spokesman from RWE, Germany’s largest power provider. The company also said it will keep “all legal options open,” in reference to the government’s decision to maintain the newly imposed nuclear fuel tax despite enforcing plant shutdowns. The tax was linked to the extension of reactor lives. RWE and Germany’s other main power provider, E.ON, had been threatening to sue the government over the levy even before the nuclear power shutdown plan was announced. And in a separate case, RWE has already filed litigation challenging Germany’s temporary (now permanent) suspension of the seven old power plants following Fukushima.

The German industry association, BDI, said the exit of nuclear power would push energy prices up and make it more difficult to reach emissions targets, as “the shortfall of nuclear power will have to be compensated by coal and gas power stations.” Merkel, however, says Germany’s goal of reducing greenhouse gas emissions by 40% by 2020 also remains in place.

According to Platts, there are some 13GW of thermal energy capacity, comprising mainly hard coal but some lignite and gas, already under construction in Germany. But four out of nine coal power stations and a lignite unit currently under construction are unlikely to be commissioned as originally scheduled in 2011 and 2012, due to a problem with boiler construction. This fact, along with the planned nuclear shutdowns, is prompting talk that the nuclear plan is untenable because it will leave Germany with insufficient power capacity.

The German decision prompted losses for several major uranium producers on Monday. Cameco (T.CCO), the world’s largest pure uranium producer, lost 3.3% while Uranium One (T.UUU) fell 2.7%. However, we do not expect Germany’s decision to impact the uranium story in the long run.

Germany’s 17 reactors account for just 5% of global demand. By comparison, there are 104 nuclear reactors in the United States and 58 in France. And developed economies are not expected to contribute significantly to uranium demand growth – the developing world will play that role. China has 27 reactors under construction, 50 planned, and another 110 proposed. India has 5 under construction, 18 planned, and 40 proposed. Russia has 10 under construction, 14 planned, and 30 proposed. And so on.

We have said it before and will say it again – the long-term fundamentals for uranium are very strong. Demand growth with outstrip increases in supply in the medium term, as the developing world works frantically to provide its billions of citizens with electricity. The Fukushima disaster, and Germany’s reaction to it, will do little to derail this trajectory.

What Germany’s decision will do, however, is further promote renewable energies. On Monday, solar cell makers Q-Cells SE and Solar World gained 8.5% and 8.8%, while wind turbine maker Nordex advanced 13.3%. Those reactionary gains aren’t sustainable, but in turning its back on nuclear power, Germany has given a lift to solar and wind that will last.

Merkel’s Euro Denial

By Vedran Vuk

Yesterday, German Chancellor Angela Merkel noted, “We don’t have a euro problem in Europe. We have more of a debt problem. Financial markets doubt whether some EU states can manage their debt in the long-term.” I have a third culprit for Europe’s problems: economically ignorant and/or deceptive leaders.

The eurozone’s debt is directly linked to the value of the euro. If Greece or any of the other PIIGS default, the euro will suffer as a whole.

Furthermore, Greece’s problems and the bailouts are a direct result of the euro’s existence. If Greece had its own currency, there would be no bailout from the European Union. Instead, the country would print a ton of its own currency. With inflation, Greece would likely monetize part of its debt. In the process, Greek citizens and bond holders would suffer the largest cost of the inflation. With the euro, Greece can’t print its way out of debt – hence the rest of the European Union must bail them out. Instead of Greece suffering the most for its poor decisions, other countries must foot the bill. And in instead of Greece inflating its own currency, the burden is placed on the euro.

This isn’t Greece’s only connection to the euro. Since inflation is currently above the European Central Bank’s target, the ECB must raise rates. However, if it raises rates, the cost of borrowing becomes more expensive across the board from Greece to Portugal. Due to its connection with the euro, the ECB must consider Greece when making a decision about German and French inflation. This is true for no other reason than the shared euro currency.

Of course, Merkel should know better. If her statements didn’t come from ignorance, they certainly came with the intent to deceive. Greece’s problems and the euro are inseparable at this point. And if Merkel’s intent is deception, the problem could be worse than imagined.

Precedents for a Police State

By David Galland

For today’s edition of these musings, I want to relate some observations arising out of a conversation I had yesterday with constitutional lawyer and monetary expert Dr. Edwin Vieira. I first became acquainted with Dr. Vieira, who holds four degrees from Harvard and has extensive experience arguing cases before the Supreme Court, at our recent Casey Research Summit in Boca Raton, where he spoke on how far off the constitutional rails the nation has traveled.

Because I think what Dr. Vieira said needs to be heard by a wider audience, I arranged for the follow-up interview that I conducted with him yesterday as a special feature for subscribers to The Casey Report. Even so, I wanted to share with all of you dear readers a couple of quick but important observations that came out of our long conversation.

Dr. Vieira and I covered a lot of ground in our lengthy conversation, most of it related to the U.S. monetary system – its history, nature, and likely fate. But in between the details and analysis of how it is that the nation’s fiscal and monetary affairs have deteriorated to the current dismal state – and how the global sovereign debt crisis is likely to be resolved – a couple of deeply concerning truths emerged.

Concerning because, taken together, these truths have set the stage for a full-blown police state.

The first of these two truths has to do the nature of today’s money. To set the stage, I present the following excerpt from Dr. Vieira’s paper A Cross of Gold related to the original Federal Reserve Act.

Section 16 of the Act provided that:

Federal reserve notes, to be issued at the discretion of the Federal Reserve Board for the purpose of making advances to Federal reserve banks are hereby authorized. The said notes shall be obligations of the United States, and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in gold on demand at the Treasury Department of the United States, or in gold or lawful money at any Federal reserve bank.

Observe: From the very first, Federal Reserve Notes were denominated “advances” and “obligations”—that is, instruments and evidence of debt. True “money”, however, is the most liquid of all assets, not a debt that might be repudiated, and certainly not a debt that has been serially repudiated.

And if Federal Reserve Notes were from the start to be “redeemed in gold or lawful money”, they obviously were never conceived to be either “gold” or “lawful money”. So, because by definition the only “money” the law recognizes is “lawful money”, by law Federal Reserve Notes were never (and are not now) actual “money” at all, but at best only some sort of substitute for “money”.

The monetary conjurers’ trick has been, slowly, steadily, and stealthily, to reverse this understanding in the public’s mind. That is, to make the substitute pass for the real thing, and then remove the real thing from the operation.

This subterfuge was not overly difficult to put over. After all, in the term “redeemable currency”, which is the noun and which the adjective? When people deal with a “paper currency redeemable in gold”, the natural uninstructed inclination is to treat the paper currency as “money” and the gold as something else. The paper currency, as the saying goes, is merely “backed” by gold—but of course is not itself gold. And because the currency is not itself gold, the money-manipulators can remove the gold “backing” farther and farther into the background, without affecting the nature of the paper as “currency” (at least nominally).

Thus, a “redeemable currency” can be converted into a “contingently redeemable” or “conditionally redeemable” currency, through temporary suspension of specie payments (as happened repeatedly during the Nineteenth Century); and then into a full-fledged “irredeemable currency”, through permanent suspension of specie payments, as with Federal Reserve Notes after 1933 domestically and 1971 internationally.

Yet, to the average citizen (whose most serious liability is mental inertia), even though a paper currency’s promise of redemption has been dishonored, it nonetheless remains “currency”.

Thus one grasps that the so-called “right to redemption” attached to any paper currency is actually a liability, inasmuch as it exposes the holders of that currency to repudiation, because they possess only the paper, not the gold.

Even in the best of times, the holders of redeemable paper currency are not economically and politically independent. Rather, they depend upon the honesty and the competence of the money-managers.

This is why America’s Founding Fathers, realists all, denominated redeemable paper currency as “bills of credit”. They knew that such bills’ values in gold or silver always depended upon the issuers’ credit—that is, ultimately, the issuers’ honesty and ability to manage their financial affairs.

The unavoidable trouble with “bills of credit”, though, is that they can (and usually do) turn out to be “bills of discredit”, when the holders discover that the money-managers are dishonest and incompetent—or worse, as is the situation today, highly competent at dishonesty. Then the holders of the paper currency (if they are sufficiently astute) realize how unwise it is to allow the gold to be held by the very people with the greatest incentive, and the uniquely favorable position and opportunity, to steal it.

But when the money-managers refuse to redeem their currency, what can the holders of that currency do to protect themselves? Well, what were they able to do in 1933 and in 1971? Nothing. If the holders of Federal Reserve Notes had enjoyed an effective, enforceable “right” to the gold that the Federal Reserve System and the Treasury of the United States promised to pay in redemption of those notes—that is, if the currency had been “redeemable” in the only meaningful sense that redemption was absolutely assured as a matter of law and especially fact—the gold seizures of 1933 and 1971 would never have happened.

Thus, the ostensibly “redeemable” character of paper currency of the pre-1933 and pre-1971 type did not protect the holders of that currency. Instead, it turned out to be the very device used to deceive, defraud, divest, and dispossess them of gold—proving in the most palpable manner that a society’s acceptance of “redeemable currency” is the product of confusion and the invitation to inevitable economic and political disaster.

(Ed. Note: You can read the entire text of A Cross of Gold at the GATA website. Here’s a link.)

Before going on, a caveat that I’ll be paraphrasing Dr. Vieira going forward, sharing my interpretation of his views, giving rise to the possibility that I may miss an important detail or nuance that would otherwise be revealed in the full interview.

In our conversation, Dr. Vieira ticked off eight specific ways in which the current monetary system is unconstitutional. While I won’t go into the specifics here, the important thing to understand is that, as currently operated, the federal government has managed to manipulate things to avoid any constitutional restrictions on its ability to spend.

This, of course, gives the government free rein to reward favored voting blocs with expensive social programs, buy fleets of limousines, launch expensive overseas adventures, bail out well-connected donors, and otherwise spend the country into ruin.

To understand why this is so important as a precedent to the evolution of fascism, view the matter in reverse by considering how different things would be if the constitutionally mandated requirement that the government’s currency be redeemable in good money – gold or silver – was still enforced. In that case, the government’s ability to spend would be effectively limited by what it collected in revenues. That, in turn, would have greatly curtailed its ability to grow into the bloated juggernaut it has.

In other words, the American ideal of a limited government would have been hard wired.

As it stands, though, exactly the opposite has been allowed to evolve – unchallenged by anyone, including the Supreme Court. Why has the nation’s highest court chosen not to tackle this clear breach of the Constitution? According to Dr. Vieira, it is likely because if they were to void the current system as being unconstitutional, they would effectively blow apart the U.S. and global economy. But as they have no authority to even suggest an alternative system, they are faced with the reality that while they have the power to do great damage, they have no power to cushion the blow. And so, the Supreme Court does nothing.

As a result, the ability of the federal government to continue its insane spending and rolling out new initiatives designed to win over voters continues with no legal restraints – the latest example being the health-care initiative. Put another way, in cahoots with the Fed, the federal government is able to wage war, bail out the banks, foster socialism, and otherwise bankrupt the nation – to do whatever it wants – largely thanks to its continued operation of an unconstitutional monetary system.

It Gets Worse…

The second fundamental truth is that the Supreme Court has been a co-conspirator and instrument of the government’s degradation of individual liberty.

Dr. Vieira and I spent a fair amount of time on this topic – of how the nation’s highest court could let stand the egregious excesses of recent decades; the Patriot Act, Guantanamo, institutionalized torture and renditions, domestic spying, eminent-domain abuses, warrantless searches, etc., etc. In his view, there can be only one of two reasons that the Supreme Court has been so accommodating – one is that the justices are incredibly incompetent, and the other is that they are working within the context of an unseen agenda.

Ruling out the first, his final conclusion is that they are operating with an unseen agenda in mind. In his view, that agenda revolves around the rising potential for widespread social unrest emanating from the nationwide monetary Ponzi scheme. Doing its part to prepare, the Supreme Court has been establishing the precedents necessary for the government to cope with that unrest.

Too radical a thought? Returning to Dr. Vieira’s point – ask yourself how else to explain the Supreme Court’s actions. Are they collectively of low intelligence, or otherwise so stupid as to be unable to understand the Constitution? Or do they now view the Constitution and the Bill of Rights as dead letters, freeing them up to respond to the government’s overheated demands for new and previously unimaginable new “emergency” (read “fascist”) powers?

Is there an alternative explanation?

On this general theme, Dr.  Vieira correctly points out that, in order for a fascist state to exist does not require the government to actually arrest anyone – but only that they can arrest anyone. Do you think you broke a law over the past week? I can assure you that every one of you dear readers broke a lot of laws. Sure, you may not have realized you were breaking a law – but, as the old saying goes, “Ignorance of the law is no excuse.”

The Stage Is Set

Unrestricted in its growth by any constitutionally mandated limits on its ability to create and manipulate money – the official currency now being nothing more than IOUs redeemable in nothing more tangible than coins made out of base metal alloys with inflated face values – and supported by a Supreme Court that has unequivocally demonstrated a willingness to ignore or sign off on egregious tramplings of the Constitution, the stage is set for the U.S. government to evolve into something far more dangerous on the domestic front.

All it requires now is a triggering event, and it would be naïve to think that such an event won’t occur. Maybe not tomorrow, maybe not this decade – but when it inevitably does, the federal government already has all the precedents it needs to do “whatever it takes.” This absence of legal restrictions on its actions is the very foundation of fascism.

When I asked Dr.  Vieira how the nation has progressed on a scale from 1 to 10 towards becoming a police state, with 10 being a full-blown version, he put us currently at about 7.

There really is no investment angle to be derived from this situation – well, at least nothing new. Owning tangible investments that will hold up in the face of a continued currency debasement continues to make sense – but with the caveat that FDR’s unconstitutional gold confiscation of the 1930s was let stand and there is zero reason to think that the accommodating Supreme Court wouldn’t go along with it again. One would hope to see straws in the wind before any moves toward confiscation would begin. Until those straws start flying, the precious metals – as well as other tangibles – belong as part of your portfolio.

And once again, I’ll mention the importance of politically diversifying your life and your money as one of the few steps you can take to avoid the serious risk that comes from being “all in” in a single jurisdiction.

(If you haven’t done so, check out www.InternationalMan.com – a new site that is picking up where Doug Casey’s book The International Man left off. It may be of some use and interest.)

In my Friday column last week, I touched on the idea that one’s perspective on the world can be heavily influenced by the media one exposes oneself to… negative begetting negative and so forth.

That makes it kind of ironic – an irony I picked up on myself while writing that article, and was mentioned by several readers – that I often write on what might be considered gloomy topics.

To which I would respond, as I did to one dear reader, that if you are sitting in a theater and see a fire breaking out, would you fail to make others aware of it, because you didn’t want to interrupt their entertainment?

Well, we can see a fire blowing up – the kindling for which has been piled up deep by a series of out-of-control governments. Unless and until there is something akin to an “American Spring.” this fire is going to spread and consume even more of the accumulated wealth of the broader public – and maybe worse.

Do what you can to protect yourself and your families – then get on with your life. You may not be able to do much about the bigger-picture trend, but you can certainly take steps on a personal level to mitigate the ill effects.

Hope for the best, plan for the worst… but then live life to the fullest.

Home Prices vs. Home Values

By Charles Vollum

[Ed. Note: I have often said that our readers are the best people in world, a view that is reinforced in my mind at every Casey Research Summit, or during the events held  biannually at the rapidly emerging community of La Estancia de Cafayate – where I first met Charles Vollum, with whom I am proud to now share a property line. An incredibly interesting individual with a wide range of interests – one of which is reflected in the work he does for his website, www.pricedingold.com. He wrote up the following on June 1, in response to the latest press release on the Case-Shiller Home Price Index.]

Yesterday, Standard and Poors issued the latest update to its Case-Shiller Home Price series.

The press release begins, “Data through March 2011 … show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010.”

Then comes the key statement: “Nationally, home prices are back to their mid-2002 levels.”

This means that on the average, a home in the U.S. that was purchased for $200,000 in mid-2002 would have sold for about the same price two months ago. So after owning the home for almost nine years, you could sell it and break even – no capital gain nor loss, and all of the cash you originally invested would be returned to you.

But the dollars returned are not the same dollars that were invested! The U.S. dollar of mid-2002 could buy a lot more than the spring 2011 model… A barrel of crude oil cost $27 then, but about $100 now. A gallon of gasoline was $1.43 then, but $3.90 now. To purchase a shopping basket of food totaling $88 in mid-2002 would now ring the register for $232. An ounce of gold was around $315 back then, but over $1400 at the end of Q1 2011!

So that house may have the same dollar price, but it does not have the same value.

The price distortions caused by a depreciating currency play havoc with investors’ efforts to decide what price to pay for assets, as well as making it difficult to tell when to sell. After all, our goal isn’t just to build an account with big numbers in it – we want to be able to afford a better life for ourselves and our families.

One approach to solving this problem is to price things using a more stable form of money – one that cannot be created and destroyed at the whim of a central bank. Gold.

In July of 2002, one dollar would buy 100 mg of gold – a penny was a milligram. In March of 2011, one dollar bought only 22 mg of gold. – and at the end of May, just 20 mg. Some things are more expensive today in gold terms, but many are not. For instance, it takes less gold to buy a barrel of crude today than in 2002 (2.0 grams instead of 2.7 grams), but it takes a bit more gold to buy a pound of coffee (54 mg instead of 50 mg). And yet, both coffee and crude oil are several times more expensive in dollars than they were nine years ago. The same goes for silver, food, copper, gasoline, postage, college tuition… almost anything you can think of.

Except houses.

Using gold as the standard of measure shows what is really happening with home values:

Home values haven’t just rolled back to their 2002 levels – they have been making new all-time lows every quarter for the last year!

This chart by itself can’t tell you whether it is time to buy a house, or if it is too late to sell that second home. Prices could keep falling, or they could stabilize and begin to recover; that will be determined by the supply of homes on the market, the needs of buyers, and the strength of their finances.

One thing is certain: in the aggregate, home values will never go to zero. People need to live somewhere, and real property has real value.  But in the coming months, the dollar price of housing may stabilize, and even rise if QE3 is launched or massive amounts of new fiat money are created to bail out Europe or to contain some other emerging crisis – even as real values are stagnant or falling. Take a look at 2001-2006 and 2009-2011 in the chart above for examples of this.

The key to understanding what’s really happening to home values, and other prices, is to watch them priced in gold.

And that, dear reader, is that for this week. Until next week, thank you for reading and for subscribing to a Casey Research service!

Vedran Vuk
Casey’s Daily Dispatch Editor