Oct 31

Solutions for Everything, Answers to Nothing

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Could one day’s Financial Times be the best £2.50 humanity ever spends…?
 

WEDNESDAY we picked up an issue of the Financial Times, writes Bill Bonner in his Diary of a Rogue Economist – the so-called pink paper due to its distinctive color.
 
We wondered how many wrongheaded, stupid, counterproductive, delusional ideas one edition can have.
 
We were trying to understand how come the entire financial world (with the exception of Germany) seems to be singing from the same off-key, atonal and bizarre hymnbook. All want to cure a debt crisis with more debt.
 
The FT is part of the problem. It is the choirmaster to the economic elite, singing confidently and loudly the bogus chants that now guide public policy.
 
Look on practically any financial desk in any time zone anywhere in the world, and you are likely to find a copy. Walk over to the ministry of finance…or to an investment bank…or to a think tank – there’s the salmon-pink newspaper.
 
Yes, you might also find a copy of the Wall Street Journal or the local financial rag, but it is the FT that has become the true paper of record for the economic world.
 
Too bad…because it has more bad economic ideas per square inch than a Hillary Clinton speech. It is on the pages of the FT that Larry Summers is allowed to hold forth, with no warning of any sort to alert gullible readers. In the latest of his epistles, he put forth the preposterous claim that more government borrowing to pay for infrastructure would have a 6% return.
 
He says it would be a “free lunch” because it would not only put people to work and stimulate the economy, but also the return on investment, in terms of GDP growth, would make the project pay for itself…and yield a profit.
 
Yo, Larry, Earth calling…Have you ever been to New Jersey?
 
It is hard enough for a private investor, with his own money at stake, to get a 6% return. Imagine when bureaucrats are spending someone else’s money…when decisions must pass through multiple levels of committees and commissions made up of people with no business or investment experience – with no interest in controlling costs or making a profit…and no idea what they are doing.
 
Imagine, too, that these people are political appointees with strong, and usually hidden, connections to contractors and unions.
 
What kind of return do you think you would really get? We don’t know, but we’d put a minus sign in front of it.
 
But the fantasy of borrowing for “public investment” soaks the FT.
 
It is part of a mythology based on the crackpot Keynesian idea that when growth rates slow you need to stimulate “demand”.
 
How do you stimulate demand?
 
You try to get people to take on more debt – even though the slowdown was caused by too much debt.
 
On page 9 of Wednesday’s FT its chief economics commentator, Martin Wolf (a man who should be roped off with red-and-white tape, like a toxic spill), gives us the standard line on how to increase Europe’s growth rate:
“The question […] is how to achieve higher demand growth in the Euro zone and creditor countries. [T]he Euro zone lacks a credible strategy for reigniting demand [aka debt].”
It is not enough for people to decide when they want to buy something and when they have the money to pay for it. Governments…and their august advisers on the FT editorial page…need a “strategy”.
 
On its front page, the FT reports – with no sign of guffaw or irony – that the US is developing a “digital divide”.
 
Apparently, people in poor areas are less able to pay $19.99 a month for broadband Internet than people in rich areas. So the poor are less able to go online and check out the restaurant reviews or enjoy the free pornography.
 
This undermines President Obama’s campaign pledge of giving every American “affordable access to robust broadband.”
 
The FT hardly needed to mention it. But it believes the US should make a larger investment in broadband infrastructure – paid for with more debt, of course!
 
Maybe it’s in a part of the Constitution that we haven’t read: the right to broadband. Maybe it’s something they stuck in to replace the rights they took out – such as habeas corpus or privacy. 
 
We don’t know. We only bring it up because it shows how dopey the pink paper – and modern economics – can be.
 
Quantity can be measured. Quality cannot. Broadband subscriptions can be counted. The effect of access to the internet on poor families is unknown.
 
Would they be better off if they had another distraction in the house? Would they be happier? Would they be healthier? Would they be purer of heart or more settled in spirit?
 
Nobody knows. But a serious paper would at least ask.
 
It might also ask whether more “demand” or more GDP really makes people better off. It might consider how you can get real demand by handing out printing-press money. And it might pause to wonder why Zimbabwe is not now the richest country on earth.
 
But the FT does none of that.
 
Over on page 24, columnist John Plender calls corporations on the carpet for having too much money. You’d think corporations could do with their money whatever they damned well pleased.
 
But not in the central planning dreams of the FT. Corporations should use their resources in ways that the newspaper’s economists deem appropriate. And since the world suffers from a lack of demand, “corporate cash hoarding must end in order to drive recovery.”
 
But corporations aren’t the only ones at fault. Plender spares no one – except the economists most responsible for the crisis and slowdown.
“At root,” he says of Japan’s slump (which could apply almost anywhere these days), the problem “results from underconsumption.”
Aha! Consumers are not doing their part either.
 
Summers, Wolf, Plender and the “pink paper” have a solution for everything. Unfortunately, it’s always the same solution and it always doesn’t work.
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Oct 29

QE, War & Other Autopilot US Action

Gold Price Comments Off on QE, War & Other Autopilot US Action
Ready for a clean break with Fed money creation…?
 

AMONG the many things still to be discovered is the effect of QE and ZIRP on the markets and the economy, writes Bill Bonner in his Diary of a Rogue Economist.
 
We can’t wait to find out.
 
The Fed has bought nearly $4 trillion of bonds over the last five years. You’re bound to get some kind of reaction to that kind of money.
 
But what?
 
Higher stocks? More GDP growth? Higher incomes? More inflation?
 
Washington was hoping for a little more of everything. But all we see are higher stock and bond prices. And if QE helped prices to go up, they should go back down when QE ends this week.
 
Unless the Fed changes its mind…
 
If the Fed makes a clean break with QE, it risks getting blamed for a big crack-up in the stock market. On the other hand, if it announces more QE, it risks creating an even bigger bubble…and getting blamed for that.
 
Our guess is we’ll get a mealymouthed announcement that leaves investors reassured…but uncertain. The Fed won’t allow a bear market in stocks, but investors won’t know how and when it will intervene next.
 
Last week, we were thinking about the reaction to the murder in Ottawa of a Canadian soldier who was guarding a war memorial.
 
There were 598 murders in Canada in 2011 (the most recent year we could find). As far as we know, not one registered the slightest interest in the US. But come a killer with Islam on his mind, and hardly a newspaper or talk show host in the 50 states can avoid comment.
 
“War in the streets of the West,” was how the Wall Street Journal put it; the newspaper wants a more muscular approach to the Middle East.
 
Why?
 
After a quarter of a century…and trillions of Dollars spent…and hundreds of thousands of Dollars lost…America appears to have more enemies in the Muslim world than ever before. Why would anyone want to continue on this barren path? To find out, we follow the money.
 
Professor Michael Glennon of Tufts University asks the same question: Why such eagerness for war?
 
People think that our government policies are determined by elected officials who carry out the nation’s will, as expressed at the ballot box. That is not the way it works.
 
Instead, it doesn’t really matter much what voters want. They get some traction on the emotional and symbolic issues – gay marriage, minimum wage and so forth.
 
But these issues don’t really matter much to the elites. What policies do matter are those that they can use to shift wealth from the people who earned it to themselves.
 
Glennon, a former legal counsel to the Senate Foreign Relations Committee, has come to the same conclusion. He says he was curious as to why President Obama would end up with almost precisely the same foreign policies as President George W. Bush.
“It hasn’t been a conscious decision. […] Members of Congress are generalists and need to defer to experts within the national security realm, as elsewhere.
 
“They are particularly concerned about being caught out on a limb having made a wrong judgment about national security and tend, therefore, to defer to experts, who tend to exaggerate threats. The courts similarly tend to defer to the expertise of the network that defines national security policy.
 
“The presidency is not a top-down institution, as many people in the public believe, headed by a president who gives orders and causes the bureaucracy to click its heels and salute. National security policy actually bubbles up from within the bureaucracy.
 
“Many of the more controversial policies, from the mining of Nicaragua’s harbors to the NSA surveillance program, originated within the bureaucracy. John Kerry was not exaggerating when he said that some of those programs are ‘on autopilot’.
 
“These particular bureaucracies don’t set truck widths or determine railroad freight rates. They make nerve-center security decisions that in a democracy can be irreversible, that can close down the marketplace of ideas, and can result in some very dire consequences.
 
“I think the American people are deluded…They believe that when they vote for a president or member of Congress or succeed in bringing a case before the courts, that policy is going to change. Now, there are many counter-examples in which these branches do affect policy, as Bagehot predicted there would be. But the larger picture is still true – policy by and large in the national security realm is made by the concealed institutions.”
Calling the Ottawa killing “war” not only belittles the real thing; it misses the point. There is no war on the streets of North America. But there is plenty of fraud and cupidity.
 
Here is how it works: The US security industry – the Pentagon, its hangers-on, its financiers and its suppliers – stomps around the Middle East, causing death and havoc in the Muslim world.
 
“Terrorists” naturally want to strike back at what they believe is the source of their sufferings: the US. Sooner or later, one of them is bound to make a go of it.
 
The typical voter hasn’t got time to analyze and understand the complex motives and confusing storyline behind the event. He sees only the evil deed.
 
His blood runs hot for protection and retaliation. When the call goes up for more intervention and more security spending, he is behind it all the way.
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Sep 15

Why Commodity Prices are Sinking

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Natural resources from oil to food are falling fast in price. Why…?
 

Is the POST-COLD WAR global boom over? asks Donald Coxe, chairman of Coxe Advisors LLC, and a consultant to The Casey Report from Doug Casey’s research group.
 
Since the fall of Bolshevism, the world has seen remarkably sustained growth in international cooperation, brought about by freer trade and new technologies. Financial assets have generally performed well, increasing prosperity across most of the world. There were just two major interruptions – the tech crash in 2000, and the financial crash in 2008.
 
The world warmed up fast after the Cold War. Prices of most commodities rose, despite major corrections:
  • Oil climbed from $15 per barrel to as high as $140. It collapsed with the crash, but climbed back swiftly to near $100;
  • Corn climbed from $2 to as high as $8 before sliding to $3.60;
  • Copper climbed from 80 cents to $4.30 before sliding to $3
  • Gold shot up from $350 to $1900 before pulling back toward $1200.
So what’s happening with commodity prices now? Is this just another correction, or has the game really changed?
 
Commodity prices have risen against a backdrop of falling interest rates:
The US 10-year Treasury yielded 8% as recently as 1994, and as low as 2.1% during the crash. Recently the consensus target was 4% – before fears of outright deflation drove it to 2.4%. Bond yields have fallen below 1%. Even the bonds of the southern members of the Eurozone yield Treasury-esque returns.
 
Remarkably, those low yields persist even as major geopolitical outbursts have ended the mostly benign post-Cold War era. The foundations of global economic progress are being shaken by geopolitical earthquakes from Russia and Ukraine to Syria and Iraq, where a new caliphate has been proclaimed.
 
It seems bizarre, but the world is heading toward a revival of both the Cold War and the Ottoman Empire.
 
Unfortunately, these concurrent crises are occurring at a time when the great democracies’ leaders bear scant resemblance to those leaders responsible for the end of the Cold War and the launch of global cooperation and free trade: Reagan, Thatcher, and George H.W.Bush.
 
Mr.Obama won his nomination by voting against the invasion of Iraq. He ran on the promise of ending wars, not starting them. Now, faced with sinking popularity in an election year that could give Republicans complete control of Congress, he naturally fears dragging America into the ISIS chaos – or Ukraine.
 
Obama is also haunted by the collapse of his most daring and creative foreign policy achievement – the reset with Russia. Mr.Putin has doubled down on his Ukrainian attacks by warning that Russia should be taken seriously, because it is a major nuclear power and is strengthening its nuclear arsenal. Those with long memories recall Khrushchev banging his shoe at the United Nations and shouting, “We will bury you!”
 
Meanwhile, Western Europe’s leaders show few signs of being prepared for either crisis. Angela Merkel, raised in East Germany, is cautious to a fault. British Premier David Cameron is struggling to prevent Scottish secession and to deal with the likely return of hundreds of ISIS-trained British citizens. (Military analysts generally agree that well-funded returnees with ISIS training are much greater threats than Al Qaeda ever was…yet Cameron has failed to convince his coalition partner to support restraining their re-entry into British Muslim communities.)
 
The backdrop for long-term investing has, in less than a year, swung from promising to promises broken by wars and threats of more-terrifying wars.
 
Another unlikely threat is deflation. When central bankers have been running the printing presses 24/7…?
 
Most economists, strategists, and investors would have deemed deflation a near-impossibility with government debts at all-time highs, funded by money printed at banana-republic rates. Who thought that the Fed would quadruple its balance sheet? And who dreamt that such drastic policies would be sustained for six years and would be accompanied by outright deflation in much of Europe and minimal inflation in the USA?
 
So why have Brent oil prices fallen from $125 in two years despite production outages in Syria and Libya and repeated cutbacks in Nigeria? Are Teslas taking over the world?
 
The answer is that the US is once again #1 in oil production, thanks to fracking (in states that allow it). Mr.Obama likes to boast about the new US oil boom, but he has been a bystander to this petro-revolution. According to an oil company executive interviewed in theNew York Times last week, without fracking, global oil prices might be at $200 a barrel, and the world would be in a deep recession. He’s a Texan and thus inclined toward hyperbole, but his point is directionally valid.
 
US frackers – deploying advances in science and technology with guts and skill – have averted fuel inflation. And farmers, using the tools of modern agriculture – GMO and hybridized seed, farm machinery equipped with GPS and logistics, and carefully monitored fertilizers – have combined with Mother Nature to unleash record crops of corn and soybeans. So much for food inflation.
 
Capitalism is doing its job: to expand output of goods and services, thereby preventing shortages from derailing recoveries through inflation. That success story means central bankers can keep printing away.
 
So what should investors do? The S&P’s rally has been sustained through near-zero-cost money used to:
  • buy back stock to enrich insiders and please activist hedge funds which have borrowed big to buy big; and
  • prop up the overall market because investors have learned that buying on margin when the costs are minimal – and below dividend yields – just keeps paying off.
Stein’s law says, “If something cannot go on forever, it will stop.” Too bad it doesn’t say when.
 
Gold loses its luster when inflation seems to be as remote as a pot of gold at the end of the rainbow. It also loses appeal if even a concatenation of crises fails to send investors rushing into the time-tested crisis consoler.
 
We had predicted in February that 2014 would be the year of increasing geopolitical risks that would challenge conventional asset allocations. We see geopolitical risks expanding from here – not contracting – and stick to our investment advice that the broad stock market is precariously valued. A range of options is available for those who wish to hedge themselves against even worse news.
 
Gold is part of any such risk mitigation. So are long government bonds.
 
Most importantly, we have entered an era when wise investors will devote as much time to reading the foreign news as they allocate to reading the investment section.
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Aug 18

New Cold War? Cold Facts

Gold Price Comments Off on New Cold War? Cold Facts
Commodities fuel a resurgent Russia. So what will “sanctions” mean…?
 

THERE is talk of a new cold war, pitting the United States against the Russian Federation, with Europe being a main battleground where both adversaries’ grievances are playing out, writes Amine Bouchentouf – author of Commodities for Dummies, a partner at Parador Capital LLC, and founder of Commodities Investors LLC – at Hard Assets Investor
 
This was the state of affairs between America and Russia for decades, following the end of World War II up until the collapse of the Soviet Union. Many of the battles that were played out in the 1970s and 1980s are now repeating themselves, characterized by periods of “détente” and “escalation” of tensions.
 
We are currently in one of those phases of “escalation,” where both adversaries are digging in their heels and firing “testing shots” to see the reaction of the other. The stakes are high, especially for the commodities markets, particularly the oil and natural gas markets.
 
Vladimir Putin claims that the greatest tragedy of the 20th century was undoubtedly the collapse of the Soviet Union. Ever since Putin came to power, his laserlike focus has been on creating a stronger Russia, flexing its muscles and spreading its influence regionally and globally. Ironically, one of the main factors that allowed him to do this has been the global boom in commodities.
 
Russia is undeniably a resource-rich country and has ridden the commodities boom to the fullest extent, benefiting from the sale of key raw materials such as crude oil, natural gas, aluminum, iron ore, coal and nickel.
 
This natural resource powerhouse saw its cash coffers grow exponentially as countries such as India, China and even Europe consumed and purchased its raw materials. As its commodities sales increased, so did Russia’s influence in world affairs including in military technology, espionage and industry.
 
Russia’s influence kept increasing as the months and years went on. First, Russia’s influence on the crucial Middle East was felt in Syria as Russia supported and backed Bashar Assad with weapons and military intelligence against American-backed insurgents. Assad remains in power while the insurgency is weak, fragmented and uncoordinated.
 
Russia scored another major coup when it lured Edward Snowden, the former NSA employee responsible for the greatest intelligence leak in American history. More than the symbolism of the act (that America’s most-wanted former intelligence officer is living in Russia), the treasure trove of information Snowden is suspected of giving to Russia could be game changing.
 
The Kremlin’s most in-your-face move came on the heels of the Sochi Winter Olympic Games, when Russia unilaterally annexed Crimea, a region under the territorial jurisdiction of Ukraine. And to add insult to injury, Russia is sending military personnel and equipment into Ukraine to arm pro-Russian separatists.
 
These same separatists are now suspected of downing a commercial civilian Malaysian Airlines Flight flying from Amsterdam to Kuala Lumpur last month. This event seems to have been the last straw for the United States and its allies, and has resulted in the US and EU imposing economic sanctions on Russia.
 
Recently, President Obama announced sanctions aimed mostly at Russia’s oil industry. The thinking at the White House and with its allies is that the administration would like to target the source of wealth that is expanding the Kremlin’s influence: natural resources, primarily crude oil.
 
While the logic is sound, in reality, these new sanctions are going to have very little impact on the Russian economy and therefore Russian behavior in the international scene. When you examine the sanctions closely as released by the Commerce Department, you quickly realize that the sanctions are targeted at future projects aimed at increasing Russian production of unconventional crude supplies, primarily located in the Arctic.
 
The sanctions are aimed at preventing Western-based technology from making its way into Russian hands to develop these fields. In practice, these fields are several years from reaching production (in most cases, five to seven years out) and so will not have any immediate impact on current Russian production.
 
Russia produces about 10 million barrels of oil per day (greater than Saudi Arabia) and exports a vast majority of that. The sanctions do not target this current production; the Brent crude benchmark was little changed as these sanctions were announced.
 
In addition, it’s very relevant to note that Russian gas production was completely left out of the sanctions list – not a coincidence since a material amount of Europe’s gas supplies come from Russia.
 
Russia Oil Production (mmbbl/d)
 
Russia Oil Production (mmbbl/d)
 
The bottom line is that these sanctions will do very little to influence Russian behavior on the world stage. When looked at through the prism of the last two years, these sanctions amount to very little more than a slap on the wrist.
 
For investors and traders, this means that production of Russian commodities (an important factor in the marketplace) will remain intact. Therefore, I would not advise going long crude oil or commodities thinking that the latest sanctions are going to take away critical supply from the market – it won’t.
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Aug 08

Gold Prices at 3-week High on “Ongoing Geopolitical Events” Amid Rising Safe-haven Demand

Gold Price Comments Off on Gold Prices at 3-week High on “Ongoing Geopolitical Events” Amid Rising Safe-haven Demand

GOLD PRICES reached a weekly gain of 2.2% at $1322.55 per ounce Friday morning in London, amid a drop in European and American stock markets and renewed violence in Ukraine and the Middle East.

The US President authorised limited air strikes against Islamic State (formerly ISIS).

Rocket fire from Gaza across the border resumed after a 72-hour ceasefire, so did Israeli air strikes.

Meantime, the Euro versus Dollar briefly touched $1.3400 Friday morning before falling back under this 9-month low last broken at the end of July.

Geopolitical headlines took the fore and not economic data. “Yesterday, a Ukrainian fighter jet was shot down by rebel forces and this started the rally in gold,” writes David Govett at London metals brokerage Marex Spectron. Then, President Obama authorised military strikes in Iraq and this morning the truce in Gaza ended.

“All in all, pretty much a perfect storm for gold prices.”

Gold prices in USD were set to approach the weekend at a three-week high ending a long run of weekly losses.

“Ongoing geopolitical events in Russia/Ukraine and the Israel/Palestine conflict [gave] support to the precious complex,” says the Swiss precious metals refinery group MKS in a note, adding that traders moved out of falling equities into safe haven assets providing gold with a gain of 9.2% in 2014 so far.

Panic in the equity markets, potential US strikes and the Ukraine crisis offered a safe haven-demand for gold, comments Wing Fung Precious Metals in Hong Kong, adding that “gold could climb quickly up to $1325 per ounce.”

Risks are now tilted to the upside,” confirms another analyst in Asia.

However, seeing enhanced volatility short term, Govett believes that when “situations calm down or resolve themselves, the price will come straight back down again.”

Silver lagged behind gold but crept back up and broke the $20 mark Friday morning, a level it kept from June 19 until last Wednesday, after touching seven-week lows earlier this week. Silver prices were on track for a loss of around 1% on the week so far.

The Bank of England kept interest rates at their 5-year record low of 0.5% on Thursday. Going into the weekend gold prices for UK investors were set to gain 1.7% and reach the highs of mid-April, at around £782.55 per ounce.

Another central bank declaration of note: ECB president Mario Draghi confirmed yesterday the European quantitative easing was in preparation.

Gold prices in Shanghai meantime maintained a premium of $1-2 over and above London prices this week amid falling Asian stocks and China’s trade surplus record high.

The physical gold holdings of the giant gold ETF, the SPDR Gold Trust (NYSEArca: GLD), shed more than 2 tonnes Thursday but remained unchanged Friday for a total of 797.654 tonnes.
 

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Jul 05

Hard Choices

Gold Price Comments Off on Hard Choices
Read Hillary Clinton’s book first? Or just bad-mouth it anyway…?
 

HILLARY’s smiling face has looked up from the desk for two weeks, writes Bill Bonner in his Diary of a Rogue Economist.
 
We wanted to read her book, if only to mock and jeer, but we couldn’t bring ourselves to open it. It was too big. Too earnest. Too carefully put together. There would be no surprises.
Like Hillary’s photo on the cover, every detail had been checked by pollsters and approved image consultants. No facts that didn’t support the uplift of the narrative were allowed. No ideas that don’t appeal to the majority voter were permitted.
 
Hillary is made appear tough, but fair…well-informed…hard working…with a razor-sharp intellect and a heart like road kill on a hot, sunny day: warm, soft and overpowering.
 
Finally, we had to do our duty, on your behalf, dear reader. We opened the book so you don’t have to. The book, called Hard Choices, is hard to pick up. And easy to put down.
 
Not because you will disagree with its ideas; there are no ideas to disagree with. Instead, the book is full of self-serving and empty blah blah. It wallows in the glory of the US Empire…and of course, the incredible, gracious tenacity of Hillary Rodham Clinton.
 
All you have to do is to look at the photos. There you find Hillary shaking hands with every corrupt, incompetent leader the world has to offer…as well as demonstrating all the qualities the dim voter may look for.
 
In one she is compassionate towards children. In another she is an activist for women. She is a fun-loving secretary of State, too. There’s a photo of her at the piano with Bono. Another of her dancing at a party in Cartagena, Colombia. And there’s Joe Biden whispering in the ear of a giggling Hillary.
 
What a gal!
 
The premise of the book is that leaders have to make tough decisions. Her first was her decision to leave a promising career as a Washington lawyer to go to Little Rock and help Bill with his political career.
 
On the evidence, this paid off. Bill hit it big in politics. Hillary became his partner – like Evita to Juan Perón. Or Christina to Néstor Kirchner. Now, Hillary is in line to be the first woman president.
 
This seems not only alarming, but also likely…
 
The Wall Street Journal reported on Wednesday that she and Bill had raised more than $1 billion from corporate donors during their two decades on the national stage. Zombie industries and crony capitalists know Hillary can be bought…and at a reasonable price.
 
The voters will fall in line. They don’t have a hard choice or an easy choice. Most likely, they will have no choice at all. The Republicans will probably field a candidate with essentially the same policies.
 
The next hard choice Hillary faced was whether or not to accept President Obama’s offer to head up the State Department. She always says and does the right thing. So she took the job because “when your president asks you to serve you should say yes.”
 
So far, we are only in the opening pages of the book, and already Hillary is nauseating. She says she’s been doing “public service” for her entire adult life. But what possible service is it? In every post she has held, she was more served than serving.
 
When she was first lady, for example, who put the bread on the table? Who baked it? Who washed the dishes? Not Hillary!
 
As secretary of State she says she spent 2,000 hours and flew a million miles. Airborne, at taxpayer expense, she and her friends would “enjoy a glass of wine.” And “watch movies.”
 
How did the public get anything out of it?
 
“I didn’t enjoy playing the bad cop,” she says of a conversation with the Israeli prime minister, “but it was part of the job.”
 
Speaking for ourselves, we didn’t ask her to say anything at all…and we’ll make our own choices, thank you very much.
 
One of the hardest choices she had to make was whether or not to send Navy SEALs “to bring Osama bin Laden to justice.” In the event, they didn’t even try. They assassinated him on the spot.
 
But around and around the world she went, a dervish diplomat. Asia, the Middle East, the Far East, the Arab Spring, the Russian winter, the European fall. Blah after blah…well-meaning public servant after well-meaning public servant…human rights, women’s rights, children’s rights. Six hundred pages.
 
How does she remember so many details? Why does she bother, except to glorify her own mastery of pointless detail?
 
She says something to somebody who says something else…bumbling from one scene of mischief to another of mayhem. Involving the free and independent citizens of the United States of America in dozens of conflicts in which they have no interest of any kind.
 
Hillary has been on the government payroll since she was 13 years old, she tells us, when she had a summer job “supervising a small park.”
 
We don’t know how much supervising a 13-year old can do. But heck, Hillary can do anything. On one page she’s rescuing children from a brothel. On another, she’s cleaning the air. On another, she’s preventing a war.
 
We are suspicious of people who stay up too late. Stalin worked until 5am. Hitler was a night owl, too. Staying up late is linked to addictions – alcohol, pornography or video games. But over and over, Hillary tells us that she was up until the “wee hours” talking to someone.
 
Good God, what awful calamity would have happened if she had just gone to bed and turned off her cellphone?
 
And now, the poor woman must be tired. So many hard choices! So much public service!
 
She needs a rest. Retire her.
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Jun 17

Gold Halves Last Week’s Rise, "Bearish Shooting Star Doji" Seen with Silver as Stocks Shrugs Off Iraq Crisis

Gold Price Comments Off on Gold Halves Last Week’s Rise, "Bearish Shooting Star Doji" Seen with Silver as Stocks Shrugs Off Iraq Crisis
GOLD PRICES fell for a second day in London Tuesday morning, dropping to $1262 and halving last week’s 1.9% gain as world stock markets ticked higher – and crude oil slipped – despite fresh advances by militant Islamists in Iraq.
 
US president Obama said Washington will work with Iran against the ISIS insurgents, but not “co-ordinate” military action.
 
The UK government said it’s planning to re-open its embassy in Tehran.
 
“Should the situation in Iraq accelerate dramatically,” says precious metals analyst Joni Teves at Swiss bank UBS’ Joni Teves, “supply risks and consequent rising oil prices could potentially have an adverse effect on the global economic recovery.”
 
“Gold’s correlation with oil has strengthened of late,” she adds.
 
But “when gold is driven by geopolitical news,” Reuters quotes Australia’s Macquarie Bank analyst Matthew Turner, “there’s a tendency that this has to keep getting worse for gold to improve.
 
“If news stabilises, gold prices tend to fall back.”
 
Both gold and silver prices now show “a bearish shooting star doji” after spiking but falling back to end Monday unchanged, says the latest technical note from Canada’s ScotiaBank, owner of London market maker Scotia Mocatta.
 
“Momentum indicators remain tepidly bullish” in gold prices, says Scotia, while silver’s relative strength indicator “provides for further upside potential…[to] a break of 
$20.00 [per ounce].”
 
Commodities across the board will suffer from a stronger US Dollar, says a new research report from French bank and market maker Societe Generale, but gold bullion in particular will be hit by rising real yields – after accounting for today’s low inflation rates – on major government bonds.
 
With the US Federal Reserve meeting today and Wednesday, the IMF’s downgraded US growth forecast for 2014 from 2.8% to 2.0% “would be bullion supportive” says bullion bank HSBC’s analyst James Steel, if the market shifts from expecting a rate hike as early as mid-2015.
 
US consumer price inflation was today pegged at 2.1% per year in May, just above analyst forecasts of 2.0%.
 
Exchange-traded trust funds shed gold for the first time in 2 weeks on Monday, dropping over 4 tonnes from the giant SPDR (NYSEARCA:GLD) to take global ETF holdings to a new 4.5-year low overall by weight.
 
Platinum and palladium prices fell again Tuesday, hitting 1-month lows, as South Africa’s AMCU union agreed the broad details of a wage offer from the world’s 3 largest PGM-group metals miners, aimed at ending the 5-month strike.
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May 02

Enigma, Riddle & the Rest of Churchill’s Russia Quote

Gold Price Comments Off on Enigma, Riddle & the Rest of Churchill’s Russia Quote
Investing in Russia’s resurgent impact on the US military-tech business…
 

UKRAINE is bad, writes Byron King in Addison Wiggin’s Daily Reckoning.
 
Indeed, the situation is a looming disaster for Western interests. I expect, however, that the mil-tech side of the economy will benefit.
 
First, let’s step back and examine the big picture. National boundaries are important, to be sure. One country should not go around redrawing another country’s map for no good reason.
 
Still, the West – the US in particular – shows no serious resolve by drawing hypothetical lines in the sand over international boundary protocol. Certainly not in places like Ukraine, where Western interests are abstract and the ability to enforce a “Western” position is absent.
 
As an aside – and not to be “too” conspiratorial in all this – there’s reason to believe that the Kiev demonstrations were organized by Western players (the usual suspects) in no small part. Now, as we don’t need to tell you, the West has a mess on its plate. Russia, of course, has its own ideas.
 
Whatever the personal or cultural merits of the so-called “Ukrainian people,” their nation is a pathetic basket case. If nothing else, Ukraine ought to be rich in agricultural potential; it ought to be a wealthy breadbasket, certainly in a world where food is getting more valuable every year. 
 
But the fact is that Ukraine is broke and has been horribly misgoverned over the past two decades since it fell out of the breakup of the former Soviet Union.
 
After post-Soviet Ukraine came into existence in the early 1990s, its governing class was a series of utter crooks. Serial governments spent paltry sums on its military, according to a recent report in the Wall Street Journal. Over time, things became so bad that when the Ukrainian army was recently called upon to show some steel to Russia, Ukrainian generals had to appeal for a public subscription just to buy new batteries for the old Soviet-era trucks. Disgraceful.
 
And on this hill, the West dares to plant some sort of flag? Could it get any worse?
 
Actually, it CAN get worse. “Russia is a regional power,” said President Obama, “that is threatening some of its immediate neighbors not out of strength, but out of weakness.”
 
Apparently sober, and presumably not kidding, President Obama continued speaking, stating that “The fact that Russia felt compelled to go in militarily and lay bare these violations of international law indicates less influence, not more.”
 
“Less influence”? As young kids say in their texts, OMG! Where to begin?
 
Memo to the POTUS: Russia’s influence stretches across nine time zones, from Europe to…well…a far-off place called Alaska. Russia is close to the Middle East, is intimate with Central Asia and shares a very long border with China. Its northern reaches border the Arctic Ocean, where Russia has a large fleet of modern icebreakers, compared with the embarrassingly few such vessels that fly a US ensign. Russia’s Far East landscape touches North Korea, and its maritime borders touch Japan (if you count islands).
 
All that, and when a nation has hundreds of intercontinental ballistic missiles, launchers, submarines, long-range bombers and more…well…you just might be more than a “regional power” with waning “influence.” Really, Mr. Prez…OMG!
 
Meanwhile, in Moscow’s Red Square, Russian President Vladimir Putin gave a short, emotional speech. “After a long, hard and exhausting voyage,” said Putin, employing timeless, classic nautical analogies, “Crimea and Sevastopol are returning to their harbor, to their native shores, to their home port, to Russia!”
 
Then, accompanied by a military orchestra and choir in full dress uniform, Putin led a large crowd in singing the Russian national anthem, with its soaring, Soviet-era music and distinctly religious post-Soviet lyrics: “Moguchaya volya, velikaya slava” – “A mighty will, great glory!”
 
Do you think those Russians might just be…umm…serious? At this point, while Russians sing songs about national greatness, Western political leadership – US, EU and NATO – can do little other than bellyache about international law. That and enact near-meaningless sanctions against individual Russians while imposing bank restrictions and kicking Russia out of the (former) G-8.
 
So what, right? On the grand, geostrategic scale, the Russians don’t care. When all is said and done, Russia’s incorporation of Crimea and Sevastopol is over. It’s a fait accompli. We’ve just watched history get made, and stand by…there may be more of that history stuff yet to come.
 
For investors, implications run deep. Like magma filling a chamber beneath a volcano, events are fast unfolding in Ukraine. Sooner or later, I suspect, we’ll see another stunning explosion. Ukraine may well implode, which is another story for another time. The short version is that there’s a real possibility of more major reversals of fortune for Western interests. Indeed, I believe that it’s a question of when, not if.
 
Russia “is a riddle wrapped in a mystery inside an enigma,” said Winston Churchill. But almost everyone neglects the rest of Churchill’s quote, that “perhaps there is a key. That key is Russian national interest.”
 
Along such lines, control of Crimea is certainly a Russian national interest. Yet pretty much the entire leadership caste of the West was caught flat-footed by Russia’s rapid takedown of Crimea.
 
There’s another type of question, however. How much intelligence gathering does it take to confirm that people running Russia – certainly Mr. Putin – believe strongly in pursuing Russia’s long-term security interests? How hard is it to figure out that controlling Crimea and maintaining Ukraine as a buffer state is a historical Russian imperative?
 
Satellites or no, facts on the ground are pretty clear. You probably followed the quick, decisive Russian takedown of Crimea last month. You saw video of the well-armed, well-led men in green – a new variant on the old Russian term “MiG” – walking around, with low-tech boots firmly planted in the soil. In general, we’re watching Russian leaders reshape a critical part of their “near abroad” to very old Russian interests.
 
Ongoing turmoil in Ukraine offers Russian leaders – Putin, specifically – the opportunity to correct profound historic errors of geography and politics. And while they’re at it, Russian policymakers don’t care what faraway people think. For example, Russian Duma member Robert Schlegel recently stated in an interview that “Americans live in their own world, treating Russia and its leaders as their colony. But this is not the 1990s. This is a new, powerful Russia.”
 
In the early 1990s, there was all manner of happy talk at the end of the Cold War about the so-called “end of history.” On a personal level, I never felt comfortable with that line of thinking. There’s inertia to history, I believe. Nothing “ends,” and now the wheel has turned.
 
So there’s ongoing, beneficial Russia-US cooperation. It’s good. Yet for all the arenas of positive development, the US and Russia also have fundamentally different worldviews and expectations on many levels.
 
And closer to Russia, collective leadership within Western Europe have made many poor strategic choices over the past two decades. It was as if European politicians gazed across the post-Cold War landscape and determined that they dwelt in a continental-scale zone of peace, made possible by their deft diplomacy – if not their noble opposition to “global warming” and such.
 
Of course, Europe’s military worldview was delusional. In reality, stability in Europe was fundamentally a broad reflection of long-term US military protection via the anchor chain alliance of NATO. Yet NATO or no, after the Berlin Wall came down in 1989, most European nations let their military forces atrophy to the point of being little more than ceremonial jobs programs.
 
Consider that during the Balkans conflict in the mid-1990s, most NATO air forces couldn’t interoperate with US forces, because they lacked appropriate radio systems. More recently, in Libya in 2011, most NATO military forces had nothing to offer, and those that did – flying sorties using obsolescent air power assets – quickly ran out of munitions.
 
Now, with Russia moving troops into Crimea and reportedly conducting “military drills” in Russian borderlands near eastern Ukraine, our collective political class in the West – the US, the EU and NATO – are backed into a geostrategic corner.
 
What’s an investor to do? Well…as one reckoner emailed us yesterday, “It’s a new world – always follow the money!”
 
We live in a time of new crisis, when the Dollar may strengthen due to its safe-haven status, but inflation is hiding in plain sight – as close as the next federal budget or Federal Reserve meeting.
 
In general, I like hard assets like precious metals, key industrial metals and energy supplies. Then there’s also leading-edge technology, for which the world will always provide a market. With what we’re seeing, I anticipate a new arms race. I used to believe that Asia was the next arms race, what with China expanding and all. Now, I suspect that the arms race will go global.
 
Within the stock markets, there’s been a strong interest in defense firms over the past two years, despite the gloomy news about defense budgeting, sequestration and such. I suspect we’ll see more of this in the months and years to come. We’re on the cusp of a new, investable era in the defense sector while that “end of history” recedes into the distance.
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Apr 30

Oil Trumps Environment (and the Dollar)

Gold Price Comments Off on Oil Trumps Environment (and the Dollar)
And the winner of Obama’s secret pipeline is…
 

ISN’T IT odd that an 800-mile pipeline that runs across environmentally sensitive land has been permitted without any mention in the media? writes Marin Katusa for Doug Casey’s Energy Report.
 
Not a word about it from President Obama either.
 
Obama’s Secret Pipeline will be built over land that’s much more sensitive than that of the Keystone XL pipeline, which gets nothing but front-page coverage. It will actually be 17% (six inches) larger in diameter than Keystone XL (36 inches) and it will transport natural gas, not oil.
 
The Senate of Alaska, the state in which the pipeline will be built, has just passed Bill 138, which makes the state a partner of three of the world’s largest oil companies, including one that has a horrible environmental track record on US soil. In a nutshell, Alaska’s government is now partners with BP, ExxonMobil, and ConocoPhillips.
 
Only one more signature is required – Governor Sean Parnell’s – and it’s expected that he will sign the deal.
 
For more than 100 years, the US government has been receiving a royalty and tax revenue paid on the amount of oil or natural gas produced on American soil – a fee that is paid in US Dollars. Bill 138 has changed this forever.
 
Instead of Alaska receiving its dues in US Dollars, the state legislature has decreed through Bill 138 that the state will be paid “in kind”. In other words, the state will be getting its share of royalty and tax revenue in natural gas instead of US Dollars.
 
For the record, this is the first time ever that a US state has entered into a partnership like this. Essentially, Alaska is now a 25% equity partner with BP, ExxonMobil, and ConocoPhillips – which also requires the state to cough up cold, hard cash to build the entire project, including the 800-mile-long, 42-inch-wide pipeline.
 
Overall, the project is currently estimated to cost north of $50 billion, and we expect that when all the capital expense overruns and government inefficiencies are accounted for, the whole project will come in at more than $75 billion, using the total costs of similar projects for comparison.
 
But it will be 2015 before the final negotiations and the specific details of the partnership are agreed on, and remember, the devil is in the details. Who do you think will get the better end of the deal – a bunch of government bureaucrats with zero oil and gas experience, or the world’s top oil- and gas-producing companies? I know whom I’m betting on.
 
We already know which company will be building and operating Obama’s Secret Pipeline. The company I’m talking about has a lower price-to-earnings (P/E) ratio and a better yield than all of its peers. That’s good, because shareholders get paid a monthly yield for owning the stock while sitting back and watching the share price rise as well.
 
Think of it this way: this company charges the world’s most powerful oil and gas producers for every barrel of oil that passes through its “road network,” and now it can also charge the state of Alaska. Regardless of the price of oil or natural gas, this company gets its fee.
 
It’s a low-risk way to benefit from a high-risk enterprise. This company is a current Buy in our Casey Energy Dividends portfolio. The Energy team is currently working hard on the upcoming issue, which will in detail cover the company that’s bound to gain big from Obama’s Secret Pipeline.
 
I know you haven’t heard about this pipeline yet, but you will soon enough.
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