Of late, I have read a number of analysts, Jim Rogers even, who have expressed the view that gold could dip to the mid- to low $600 level.

Could happen, but I think not. Already, buyers of physical gold are finding anything near $700 to be cheap and so are helping to build a floor under the monetary metal. On that topic, a friend sent this item along last week…

"(Gulf News Nov 12) Riyadh: There has been an unprecedented demand for gold in the Saudi market recently, with over 13 billion Saudi riyals (Dh12.75 billion) being spent on the yellow metal during the last two weeks.

"Demand is expected to rise still higher as more investors turn to gold as a safe haven in the midst of the global financial crisis, according to market sources.

"Sami Al Mohna, an expert on the gold market, said the trend had resulted in a substantial rise in the gold reserves of Saudi investors.

"Since soaring to an all-time high of $1,033.39 per ounce in March this year, gold has plummeted 30 per cent.

"Gold for December delivery on Monday rose $8.60 to settle at $726.80, roughly the same level at which it traded a year ago.

"’Many Saudi investors see this as the right time for making investments in gold as its price is the most reasonable one at present,’ said Al Mohna."

Needless to say, the Saudis have a lot of money. Not just a lot… but a really, really, big, stupendous mountain of the stuff.

Oh, and like you and me, they’re human.

Which means they can’t help but glance through the morning’s financial news, adjust the reading glasses, and think, "Blessed Mohammed! This is getting really, really serious. Maybe just a little extra gold under the tent right now wouldn’t be such a horrible idea."

They aren’t alone. We are getting regular reports that at these prices, demand is soaring in India (where price inflation is now running around 11%), and brisk sales have pretty much wiped out physical supplies of small coins and bars in the U.S. and Europe… among other corners of the world.

On that score, a few days ago, correspondent Jim G. sent along the following…

"Most of you are probably aware that there’s a shortage of gold bullion coins at the retail level.

"What does that mean?

"Today I decided to purchase some gold bullion coins. So I called the Northwest Territorial Mint, one of the larger operations in the country or at least the Northwest, so I’ve been told.

"I called to see what the availability was. The operator put me through to sales, where I sat for 30 minutes. I finally got in my car and drove 40 minutes there, all the while still on hold. When I finally got there, a woman went in the back to see about bullion coin availability. She was told they were back ordered with 30,000. Not dollars, orders. If I placed an order today, they thought they could fill it in 16 weeks.

"To sum, I’m buying… if you know a seller."

While we already know $750 is no magic number below which gold cannot fall or below which it cannot loiter, I take no small comfort in the fact that there is a clear increase in demand at that price. In time, as the dollar continues to participate in the fiat currency race to the bottom, that number will ratchet higher and higher still.

Maybe not overnight, but in the next six months to a year, certainly… or as certain as anyone can be about anything these days.

One thing that could get the show on the road pronto-like has to do with the continuing presence of the other 900-pound gorilla in the room, foreign dollar holders. Like the Saudis, the Chinese have at their fingertips a lot of greenbacks. Actually, not just a lot, but enough to remake the Great Wall.

And they, too, are humans.

And so, over their morning cup of tea, they finger the abacus while watching the daily financial news and say, "Holy Mao! This is getting really, really serious. Maybe just a little extra gold in the rice jar right now wouldn’t be such a horrible idea."

On that front, here’s some news from Hong Kong…

"(The Standard, Hong Kong. Nov 14) — The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

"Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

"China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

"The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

"The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

"Beijing’s reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said."

"In another article from Bloomberg, the head of China’s gold association commented that he thought China could triple its reserves.

And there was this quote from that same article.

"China has the world’s biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China’s demand for gold jumped 23 percent in 2007, making it the world’s second-largest consumer.

"The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper in Hong Kong reported today, citing an unidentified person."

In the final analysis, we can’t say with certainty what path gold will take between now and the time this crisis is over. But until I can see some tangible evidence that it has lost its value as money, I’m a happy holder and, at under $750, a buyer.

Regards,

David Galland
for The Daily Reckoning
November 25, 2008

David Galland is the managing director of Casey Research, LLC., and the editor of The Casey Report, a monthly letter focused on helping readers get profitably positioned in powerful long-term trends. In recent months, subscribers have made big profits shorting bank, real estate, and financial stocks through easy-to-buy, easy-to-sell ETFs.

Last night, we looked into the future.   And it wasn’t very pretty.

"Everything blows up," was how we would summarize it.  Investments, strategies, civilizations, the world, life itself.

We came to Zurich to attend a conference organized by our friend Rolf Dobelli.  He calls it Zurich Minds.  You can check it out at Zurichminds.com.

Another friend, Nassim Taleb, author of The Black Swan , was making a presentation…along with a group of scientists from various disciplines.

We got the bad news first:

"Our galaxy is on a collision course with its nearest neighbor," explained a professor of physics.  "Andromeda and the Milky Way are going to run into each other.  The result will be spectacular.  Of course, it will be the end of our world…our solar system…even our galaxy…and of course we will all die…but that is the least of our worries."

Having gotten the session off on the wrong foot, we hopped all evening…from one disaster to another.

We’ll come back to universal calamities in a minute.  First, let’s look at the latest doings in the financial markets.

Yesterday was another good day for stocks.  The Dow was up more than 300 points.  Gold was up $30.

Here is our simple analysis:  when stocks go down, gold goes down less; when stocks go up, gold goes with it.

We conclude that it is better to own gold than stocks – roughly the same conclusion we came to eight years ago.

"Yes…but how do you own gold?" asked a Swiss fund manager.  "I agree that gold will probably go up.  But you have risk in two directions.   If the world economy deflates, gold will go down.  Maybe to $600.  Maybe to  $500.  Who knows?  But if the feds are able to reflate, and gold goes to $2,000 an ounce, they will probably stop trading in it."  Or freeze gold accounts.  Or even seize gold accounts, as Franklin Roosevelt did.

"The thing to do is to buy coins.  But the coins have disappeared.  You have to pay such a high premium to get them, I’m not sure it’s worth it."

Ah, there’s a crack in every bell God ever made.  Hit it hard enough and it will fall to pieces.  Everything blows up, in other words.

Recently, investors have been hammering on the world’s capital markets.  Asset values have gotten smashed…formerly great companies have been beaten to bits…and the average stock portfolio as been cut in half.

Soon, we predict, they will be hammering on the world money system itself – and pounding the big green bell of the U.S. dollar.  Before it is over, we expect the world’s dollar-based money system will fall apart.

How do you protect yourself?  Go to cash.  But take a minute.  Smell the cash.  It stinks.

"All the world’s currencies look terrible," continued our Swiss fund manager.  "All the world’s central banks are doing the same thing – essentially inflating currencies in order to try to offset the deflationary effects of the downturn."

The traditional way to protect yourself is to buy gold.  But there’s a crack in that bell too.  And sooner or later, the feds will hit it with a sledgehammer.

But that is still in the future…perhaps far in the future.

In the meantime, we hold gold in any form we can get it…we sell stocks when they rally…and buy more gold on dips.  And you can still pad your portfolio with the precious metal – for just a penny per ounce.

*** "But there is another risk to the universe," continued the physicist.   "There is that dark force…the V force…or vacuum force that Einstein identified, but still no one knows what it is.

"If you look at the stars carefully, you’ll see that they are getting farther and farther away from one another.  Interestingly, the stars that are the farthest away…those on the edge of the universe…are moving away at the fastest speed.  What this tells us is that there is some force causing the universe itself to come apart…and that it is accelerating."

Translation: the universe itself is blowing up.

"What this means," he continued, "is that we will be lost in space…in dark space…without a star or a moon in the sky…they’ll be too far away.  And then, every particle of the universe will explode into its component parts.

"That kind of puts your worries about falling stock prices in perspective, doesn’t it?" he concluded.

*** Of course, we have no worries about falling stock prices.  Not here at The Daily Reckoning .  We figure we’ll get what’s coming to us; we’re not going to fret about it.

Besides, our next speaker explained that if nature doesn’t blow up the world, maybe we’ll do it ourselves.

The young woman was one of the promising sort you find in Europe these days – very bright, very well-educated, and very mobile.  She grew up in Algeria, speaking Arabic.  Then, she learned French in school.  Studied in Italy, France and the United States…and is now getting ready to blow up the world from her base in Switzerland.

The Hadron Super Collider is in Switzerland…near Geneva.  It’s the latest thing in particle physics.  The idea is to recreate the conditions that existed right after the Big Bang, when the universe was created, by giving particles plenty of race track so they can get up to such speed that when they crash into other particles it makes one helluva mess.  You’ll remember that the whole thing got off with a bang a long time ago.  In less time than it takes to drink a glass of beer, the whole universe was created, in what scientists call the great ‘inflation.’  It’s been expanding ever since.

"All matter is composed of quarks, leptons and forces such as gravity and electromagnetism…" the woman continued.  "By inducing these collisions in this basic matter, our goal is to be able to understand what happened in the beginning…  Of course, we don’t know…the world could blow up…" she said with a smile, "but it is a very small risk."

When they started up the Super Collider a few months ago, it did blow up…and break down.  They had to pull the plug.  Now, it’s being fixed and is expected to be open for business again next year.

"I’m really so lucky to be in the right place at the right time," the young woman wound up her presentation.

*** Our next speaker got off to a more hopeful start.  "Is it possible that we could live forever?" he wondered.

Death seems to be encoded in our genes.  We are born to die, says the old expression.  But if humans were "programmed" to die, reasoned the young molecular biologist, it might be possible to "turn off the switch."

Alas, if it were genetic coding that causes us to die, he went on, we would see occasional mutants – whose genetic code was defective – who lived forever.  We don’t.  Therefore, the march to the grave is more fundamental than that.

"All living things die," he continued.  It is just the nature of the universe.  Get used to it.

That was a big let down for us.  Not that we wanted to see the collision with Andromeda or the day when the gluons stop holding matter together, but it would be nice to know we could make it to the next presidential election or to the end of this bear market – if we wanted.

But that’s just another part of the disappointment.  We know we’re all going to die, but we don’t even know when.  Makes it hard to plan.

*** If that weren’t bad enough, we also got a blow to our pride.  "Humans are no longer considered the crown of creation," explained another biologist.  "Charles Darwin first drew out a sketch of the ‘tree of life.’  Later it was elaborated, but always in the same direction…showing progress from tiny, primitive single-celled organisms up the tree of life."

The tree grew past the fungi and bacteria…past the reptilians…past the tree toads and garden varmits…past the rap stars and tax collectors…past the Irish…and up to humans at the very summit.  But now, all that has changed.  Now, it’s a big circle.  Humans are stuck on one side, next to pond scum – amid hundreds of thousands of organisms.

"There are thousands of bacteria in a single teaspoon of dirt," said our scientist.  "Most of them are completely unknown and can’t be cultivated in the laboratory.  And we don’t even know why.

"They seem to form communities…in fact, they form communities in your body…helping each other.  You take an antibiotic to kill them.  Some of the bacteria ‘absorbs’ the antibiotic, protecting the rest of the group."

How about that, dear reader?  Some bacteria take the bullet for other bacteria.

"We don’t know how or why they work the way they do.  But just one of these bacteria was responsible for killing a third of the population of Europe in the Great Plague."

It was probably a mistake, in that bacteria have little interest in killing their hosts.  But accidents happen, even in the world of bacteria.  The bacteria responsible for the plague blew itself up…it killed off its hosts and left the human population with greater resistance.

What the bugs want, we guess, is a quiet place to live…without getting attacked all the time.  They want a healthy vessel to carry them through life…where they can get what everyone wants – a decent standard of living and a comfortable retirement.  Maybe that’s all we humans are — merely carriers…convenient boats for the bacteria.  Those who are useful to them are kept afloat…and allowed to propagate.  Those who are not useful are scuttled.

*** We also got some psychological insights.  A professor at the local university has been studying stress.  It turns out, there is an important difference between the sexes.  When a man is under stress, he often doesn’t recognize it…or he denies it.

"Something bothering me?  No…’course not.  Everything is fine.  Fine, I told you!"

Then he goes and blows his brains out.

A woman, on the other hand, is more aware of her own condition.

"When she is sad…she’ll act sad…she’ll watch sad movies…and cry.  She seems to ‘get it out of her system’ and is better off."

But standing by your man can help, the professor continued:

"Under stress, a man benefits greatly from social support…the kind of support his wife typically gives him.  We’ve done studies of this.  The guys are much better off when they confront a difficult situation with their wives by their sides.

"On the other hand, when we asked the husbands to support their wives, the results were negative.  In a controlled study, in which some women got no help…others got only physical help, in the form of a neck and shoulders massage…and a third group had the support of their husbands, we found that the group that did the worst was the one whose husbands were supposed to be helping them.

"We don’t know quite what to make of that…but that was the finding.  So, men, if you want to help your wives…give them a neck massage…or a hug.  Otherwise, stay out of the way."

Until tomorrow,

Bill Bonner
The Daily Reckoning

Gold in the Low $600s? originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

As we take a longer view on the precious metals here at Casey Research, I’m not much for commenting on current market gyrations or the various subthemes that regularly emerge in the blogs.

First and foremost, as to the purported discrepancy between the price of gold on commodities exchanges and that of physical gold, in my view, any real discrepancy would be jumped on by the arbitragers so fast, it might even break the land-sound barrier.

As for the shortage of gold and silver bullion products, we would attribute this to a couple of factors. The first is that there has been some poor planning on the part of the mints. Secondly, the poor planning is likely due to a failure to appreciate how many people are coming to the conclusion that it is better to own at least some precious metals, instead of holding only the unbacked paper of governments.

As for gold’s recent steep fall in the face of the clear signs of physical demand, it seems clear that this was largely caused by gold traders taking profits. At every step up in this bull market, the precious metals have been stuck, for months at a time even, in trading ranges… the bottom of which evokes buying and the top of which triggers selling.

It is always worth keeping in mind that the defining feature of commodities exchanges is the leverage the instruments that trade on these exchanges offer. Consequently, the traders who call those exchanges home are able to marshal considerable juice in their quest for a new Lexus with 16-way driver seat features and custom leather interior.

The salient point is that while those of us who believe in the values offered by gold and silver like to think of them as "substantial" markets, when it comes to futures markets, they are like a gnat on the tail of an elephant. To make the point, consider that the cash value of foreign-currency contracts traded globally each 24-hour period is on the order of $3.2 trillion. By comparison, over the same 24-hour period, on average, $26 billion worth of gold trades hands. For silver, the number is even smaller, just $4.5 billion.

All of which is to say that (a) these are markets that can be "pushed around" by the traders, and (b) when a large number of traders shift into "take profits" mode, the price of the metals can be trampled.

The long and short of it is that range trading will go on for awhile, until something occurs in the psychology of the market that shifts the majority into the long side… at which point the upper end of the trend is decisively broken and the range is reset to a higher level. It is my contention that the top of the range for gold is now $1,000, and we could see it continue to test that level, then fall back, for some time. But really, who can say? It could happen literally almost overnight.

Shifting to a somewhat nearer-term perspective, however, it is worth looking at the chart from Seasons of Gold, the archived article from the April 2006 edition of the International Speculator.

While the chart hasn’t been updated lately, the data used is so long-term – 30 years – that updating it wouldn’t have changed anything by any noticeable amount.

Viewing the chart, it doesn’t take a lot of imagination to assemble a scenario whereby the continued strong investment demand for physical gold meets the traditional strength of the Indian wedding season buying that contributes so much to the historical pick-up in gold prices in September.

Toss in the effective nationalization of Freddie and Fannie, putting the U.S. taxpayer as the guarantor of last resort on fully half of the mortgages in the nation…and mix in some of the ripe geopolitical apples now falling from tall trees, or the imminent realization that oil isn’t going back to $50 or that the inflation phenomenon is not temporary, and we could see a big bump in the gold price over the next couple of months.

Time to go long in the futures market? Well, on that topic, all I can say is, tread carefully…and use as little margin as possible just now.

That’s because, as wild as things have been in pretty much all the markets, we haven’t seen anything yet. If there is one thing you can take to the bank, it is that, in the months just ahead, the volatility of virtually all markets is going to go ballistic. For the attentive trader, that can mean big, and repeated, opportunities for profit. But for the casual trader, high volatility can lead to quick loss making.

Sticking to a longer-term perspective – buying and holding and, if resources allow, buying more on the dips – is the way to go.

Regards,

David Galland
for The Daily Reckoning
September 16, 2008

David Galland is the managing director of CaseyResearch.com, for over 27 years publishing private investment intelligence for individual and institutional investors.

We are spoiled for choice this morning, dear reader; we scarcely know where to begin…

…with yesterday’s 504 point sell-off on Wall Street?

…with the biggest bankruptcy in Wall Street history – Lehman filed chapter 11 with $613 billion in debt?

…with our old dictum: the force of a correction is equal and opposite to the deception that preceded it?

…with another look at the Big Picture…at what it means for capitalism when its biggest firms go bust?

…with the past or the future? With a look back, at how a company that survived the Civil War, the railroad bankruptcies, the Panics, WWI, the Great Depression, WWII, and the Cold War couldn’t survive the biggest financial boom in Wall Street history? Or a look ahead, at what will happen after one of the biggest dealers in the $400 trillion derivative market bites the dust?

Do we take the high road – with a lofty discourse on the perils of excess leverage?

Nah…let’s take the low road:

We told you so!

Yes, dear reader, we watch the masters of the universe go down…with a fair amount of amusement and even schadenfreude. They claimed to be the smartest people on the planet – and demanded to be paid as if they were. They said they were doing the world a big favor – "allocating capital" so efficiently we would all get rich. And, of course, no one would get richer than they. But who could complain about their billions in bonuses when we were all getting rich?

Now, it turns out, they weren’t so smart, after all. Like all hustlers, they weren’t smart enough to ignore their own lies. They were the ones who packaged up all that subprime debt – mortgage loans on over-priced property to people who couldn’t pay the money back; they knew what was in that "mystery meat." Then, they got the useful stooges at the rating companies to call it Grade A. And then, they bought it themselves! What were they thinking? Not only that, they bought it on leverage – so that if it went bad, their whole company would go belly up!

And now, mothers no longer want their babies to grow up to be stockbrokers and investment bankers. Now they want them to grow up to be bankruptcy lawyers! That’s where the money is!

But let’s stop gloating and try to figure out what is going on…

We are in a deflationary correction. The financial industry made a fortune by flogging debt; now it is taking huge losses because its collateral is going bad, its assets are declining in value and its business is soft.

Merrill Lynch was worth $86 billion in January of 2007. Now, it is selling itself to the Bank of America for $50 billion. Why the sale? Because Merrill is afraid that it could go the way of Lehman Bros. That latter firm was worth $45 billion in February 2007. Now it is worth nothing…or close to nothing. Shares traded hands yesterday at 29 cents.

Goldman Sachs, meanwhile, is said to be the best firm on the Street. But even it is suffering. It is supposed to announce revenues down 73% for the 3rd quarter.

The handwriting has been on the wall for a long time. Once its collateral began to go down in ‘07, the bubble in the financial industry couldn’t last long. We saw what was coming down the pike and have been sending our dear readers to the Strategic Financial Survival Library for resources on how to continue to make money in the coming bust.

Still, unlike our readers, investors are shocked; they hadn’t bothered to read the headlines. Yesterday, they sold stocks and the dollar. Oil held stead – still over $100. The euro rose…and gold jumped $26.

*** Speaking of gold…

This week, Barron’s interviewed some sages of finance.

"In a total disaster," said Peter Bernstein, "where there is a run on paper currency, you’ll get your biggest bang for your buck in gold…if everything hits the fan, gold should be worth several thousands dollars an ounce."

Yesterday, at least some investors must have seen a total disaster headed their way. They bought gold.

But let us return to the big picture. For the last 13 years, the U.S. money supply has been increasing at about 2 times the rate of GDP. This is known, to monetary sticklers, as "inflation." But the "inflation" that most people think of is the kind you see at the gas pump and supermarket checkout counter. Nobody squawks when the sticklers’ inflation raises house and stock prices. But nobody doesn’t squawk when it raise consumer prices.

The monetary inflation of the last 13 years caused only modest consumer price inflation – for many reasons often described in these daily reckonings. To wit, China was making things cheaper. Wal-Mart was selling them cheaper. And the dollars spent by consumers in America tended to end up in the pockets of investors in Asia and Arabie, not in the U.S. domestic money supply.

But all good things must come to an end…especially things that are too good to be true. And now, the great bubble in credit has been popped – and everyone’s squawking. The financial industry is in decline – and will probably not recover in our lifetimes. Inflation has given way to deflation. Just look at what happened to Lehman Bros. Hardly more than a year ago, investors had an asset worth $45 billion. Now they have nothing. What happened to that $45 billion? It disappeared.

In California, the average house has lost about $120,000 (we are just guessing, but probably not far off) in market value. What happened to that $120,000? It disappeared.

The Chinese stock market has disappeared half of investors’ money. The oil market has disappeared nearly a third of producers’ fondest hopes for future revenues. Jobs have disappeared. Sales are disappearing. Growth rates are disappearing. Bonuses have disappeared. And it is happening all over the world. Thanks to a globalized economy, the entire globe gets to suffer a slump.

But what’s really new? This is what always happens when boom turns to bust. Asset values disappear. And with them, the money supply itself contracts. People spend less freely. They lend less recklessly. More money stays tucked away for longer periods in pockets and bank accounts. Prices fall. Many assets turn out to be worthless and many people go broke.

Investors buy gold to protect themselves. Gold never overstates its earnings, understates its liabilities or declares bankruptcy. When everything else goes to Hell, gold is still there…still doing its job.

Of course, the feds try to prevent nature from taking her course. They counter a natural correction with further unnatural deception. They lend at lower rates than those set by willing buyers and sellers. They spend even more recklessly than usual – often going to war in order to stir up financial activity.

Today, for example, the Federal Reserve honchos will meet. The bank already lends to Wall Street at less than half the rate of consumer price inflation. The betting on Wall Street is that it will lower its key interest rates again – so that it can lend to Wall Street at even better rates. That’s one reason why Merrill wants to sell itself to the Bank of America – so that it can take advantage of more of this free money.

Of course, when there is a serious correction, the financial authorities also make a great show of repairing the damage, supposedly caused by greed and the lack of regulation. Typically, there are a few show trials…a few rich people are ruined and run out of town…and new programs and regulations are put in place which tend to delay recovery and make the next bust-up even worse.

But among one of the feds’ tricks, one is particularly dangerous: they can print money.

Yes, dear reader, when the going gets rough, the feds turn on the printing press.

That’s when owning gold really pays off. More on this…as the story develops…

Until tomorrow,

Bill Bonner
The Daily Reckoning

Whither Gold? originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Making assumptions is often a bad idea, but I am going to go out on a limb here and make the assumption that those of you with an interest in gold are concerned over the latest setback, the depth of which has surprised even us.

Don’t be.

The evidence to support that statement would fill a telephone book at this point. Starting with the latest U.S. inflation numbers which, even using the government’s own crooked calculations, rang in the last reporting period at 5.6%. Quoting John Williams of ShadowStats.com from a recent email I received from that organization…

“Reported consumer inflation continued to surge on both a monthly and annual basis, once again topping consensus expectations. The July CPI-U jumped to a 17-year high of 5.6% in July, while annual inflation for the narrower CPI-W – targeted at the wage-earners category where gasoline takes a bigger proportionate bite out of spending – annual inflation jumped to 6.2%. The CPI-W is used for making the annual cost of living adjustments to Social Security payments. The 2009 adjustment – based on the July to September 2008 period – remains a good bet to top 5%, more than double last year’s 2.3% adjustment for 2008. Such is not good news for federal budget deficit projections.”

Based on William’s calculations, which use the same CPI formula used by the Fed prior to the jiggering of the Clinton years, the actual inflation rate is now running at 13.64%. And on August 19, we learned that the U.S. Producer Price Index rang in at a month-over-month increase of 1.2%, the third month in a row where that leading indicator has topped the 1% mark. Meanwhile, in Europe, the latest numbers put inflation at a 16 year high. And these are not anomalies, but the norm as the inflation tide continues to rise literally around the world.

A good analogy to the global currency devaluation is a slow-moving hurricane that, once over warm water, gains energy.

Right now the global inflation is a huge storm, slowly circling off the proverbial coast where it is gathering strength from the hundreds of billions of dollars being fed into it by governments desperate to avoid economic collapse…and from pricing decisions being made by everyone from manufacturers to local shopkeepers looking to cover rising costs.

At this point the skies are dark, the wind is rising, and the torrential rains are beginning to sweep in. The radio is broadcasting warnings to move to higher ground, but the hurricane has yet to hit the shore.

But when it does, it will be a Category 5 and maybe worse.

That’s because, in addition to the straight-up consequences of the government monetary prolificacy and businesses raising prices to try and stay afloat, there is something else feeding power to the storm…something we have been warning about for years now: the rising odds that the global fiat currency system will fail.

Let me add some nuance to that remark.

In recent years, the global financial community, reflexively looking for an alternative to the obviously damaged U.S. dollar, has settled on the euro. But the euro is equally flawed, and maybe even more so, than the U.S. dollar. Now that the trading herd has also come to that conclusion, they are rushing back toward the dollar.

They are doing so not because the U.S. dollar is healthy, but rather because that is all that they know…a heads-or-tails continuum running something along the lines of “If the ‘it’s-not-the-dollar’ play is over, then it must be time to go back into the dollar.”  The euro sinks, the dollar goes up.

And so gold, viewed by these same traders only in terms of its inverse relationship to the dollar, gets hammered.

What they are missing, but not for much longer, is that rushing back into the dollar is akin to heading for the vulnerable coast, and not to the higher ground now proscribed. They are also missing the point that gold’s monetary value is not limited to protecting only against a failure in the U.S. dollar, but against any faltering fiat currency…a moniker that the euro deserves in spades. Not only is it backed by nothing, but it is also backed by no one.

I hope that the above point is clear, because it is an important one. One way to think about it is to think about Zimbabwe. If you lived in that blighted country and a year ago you could have had an ounce of gold or a wallet full of that country’s failing currency, which would have been the better bet?

The answer, while obvious, is illustrative…because the wealth preservation role that the ounce of gold would have played for a citizen of Mugabe’s paradise had zero connection with how well gold did, or didn’t do, against the U.S. dollar over the period.

Gold is viewed as tangible money right around the world, and has been for millennia. When the trading herd wakes up to the fact that neither the U.S. dollar nor the euro, nor any other fiat currency, will protect them against the monetary storm that will soon begin tearing the roofs off their cozy offices, they’ll fall all over themselves in the rush for something that will: gold and other tangibles.

Many of you know that the scenario just described is one that we have forecasted for some time. If you think the thing through, precedent to the global monetary crisis, the euro first had to stumble. Well, it now has. The next stage – and given the volatility of the situation, I don’t think we’ll have to wait long for it – will be the realization that there is no safe fiat currency. It is at that point that the massive hurricane, a crisis of confidence in the entire fiat system, will begin ravaging the global economy in earnest.

The price action of gold and, especially, gold-related investments over the last year, have been frustrating…to say the least. But the scenario now unfolding remains step-by-step in sync with our base case. As such, the best way to view this latest correction in the price of gold is as a temporary setback of no real consequence from an investment perspective (unless you use it as a buying opportunity).

The failure of the euro, on the other hand, is not just important…it is as monumental as it was inevitable.

Regards,

David Galland
for The Daily Reckoning
August 26, 2008

“Wall Street, central bankers, economists, politicians – and most investors too – are betting on a soft landing,” said a friend from New York. “A slowdown in world growth has taken the pressure off commodity prices. Slower growth will help keep inflation down, generally. And as long as inflation is no problem, the Fed doesn’t have to raise rates – which will keep the slowdown from hitting too hard.”

Monday’s International Herald Tribune echoed the good news:

“World economies catch US malaise…pain of slowdown spreads far and wide, threatening businesses and growth.”

The world was growing at about a 5% rate in 2007. It’s expected to slip below 4% next year, with the U.S. economy at less than 1% growth. Since the U.S. population grows by more than 1% per year, this means a lower standard of living for the average person – at least in theory.

Of course, Americans need to accept a lower standard of living anyway. They’ve been living beyond their means for a long time; now they need to live beneath their means to correct the situation. In an economy dominated by consumer spending, this practically guarantees a long period of sluggish growth or recession – no matter what.

But it would be a lot easier to correct the mistakes of the past in a growing economy. Rising incomes would give consumers more room to cut back without too much suffering. Cutting back on falling incomes, on the other hand, is doubly painful.

A correction is unavoidable. The question for us, here at The Daily Reckoning, is: what kind of correction it will be? Will higher prices reduce the value of the dollar – reducing Americans’ incomes, savings and their burden of debt? Or will recession reduce their incomes and the value of their assets?

Whenever we have posed those questions in the past, the answer we have always given was: yes – Americans will get hit both by the jabs of inflation and the haymaker of deflation. So far, that is exactly what has happened. Prices are rising while asset values and incomes are falling. The average consumer is staggered by the blows.

The latest inflation figures show consumer prices rising at 5.6%. And the latest figures for producer prices show them going up at nearly 10%.

What is remarkable is that even with these numbers staring them in the face, investors still buy 10-year Treasury notes yielding less than 4%. Typically, bond investors are the most sophisticated investors. They’re looking at the global growth figures and believe that inflation rates will go down too. Average Americans may expect rising prices for food and fuel. But investors seem to have no worries on that score. You’d think they’d want at least enough yield to protect their capital. But at present rates, an investor in a 10-year Treasury will lose about 1.6% per year. Apparently, he regards that as a small price to pay for protection from falling asset prices.

Oil has already fallen from $147 down to $112. Gold dropped below $800. And with a sluggish world economy, there will be little push from labor rates, he reasons. Bond investors are betting that inflation rates will go back to where they were a couple of years ago – around 2%.

They may be right. But to us, it looks like a bad wager. Where is the margin of safety? What if inflation moderates to an annual rate of 2%? The long bond investor – were he to hold to maturity – would still make only 2.4% on his money. On the other hand, if he is wrong and inflation stays above 4.4%, he earns nothing. If it goes higher, he could be wiped out in a matter of weeks. We’re just guessing here…but the odds that sometime in the next 30 years inflation will rush up above 6%..or 7%…or 10%…are probably greater than the odds that you’ll be able to collect 4.4% for 3 decades and come out a winner.

We’re looking at the big picture…trying to see the large trends before they’re history. We’ve never quite mastered the art of seeing things before they happen, but we’re still squinting, trying to do it…

What we see coming, one way or another, is a fall in living standards. It can happen in one of two ways: either people lose their jobs and their incomes in a deflationary slump, or inflation makes their incomes and savings worth less.

So far, “both” has been the right answer. Our guess is that it will continue to be the right answer.

Yesterday, we saw a big drop in the Dow, more than 200 points. Worldwide, equities have lost about 17%.

More evidence of the slowdown appeared in Atlanta – where unemployment has hit a 16-year high – and in Southern California, where luxury houses in San Diego and Los Angeles haven’t fallen so much in 10 years.

Even more telling, bank lending has jelled to the point that the money supply is no longer increasing at the pace it had been. Until April, it was running at about 20% per year. Then, suddenly, the river dried up. Currently, the money MZM (a measure of the money supply) is only increasing at a 5% rate.

These circumstances have changed the headlines. Inflation is no longer making the news; now deflation is the story every paper tells. Inflation is yesterday’s news. Deflation is today’s.

For tomorrow’s headlines…we’ll have to wait a day…

*** Joe Biden. We don’t follow politics. Money is our beat. But even through our green eyeshades…and across the broad Atlantic…it looks to us as though Obama has made a mistake.

The problem for Obama is that he has gotten his frauds mixed up. His message to the American public was that he was a breath of fresh air…a new man…for a new day…with a new program – “change,” he promises. Of course, it was all humbug; but after so many years of Bushes, Cheneys, Rumsfelds, change seems like a good idea to many voters.

But now that Obama has practically got the keys to the White House in his hands, he thinks he needs to reassure voters that he won’t change things too much. So he’s turned to the old hack, Biden, to signal to the nation that in an Obama administration things will go on as they did before.

The trouble for Obama is that voters are likely to get the message. And they’re likely to think that if it’s change they want they’ll be better off with McCain. The Republican candidate is a hack too, but he has the reputation for being unreliable. We know he’s capable of change. He’s already changed many of his positions in order to pander to the right wing of the Republican party. Once he no longer needs them, he’s likely to change back.

*** Central bankers got together in Jackson Hole, Wyoming over the weekend. As we reported yesterday, the confab was disturbed when an uppity Brit dared to say the obvious – that the Greenspan Fed had erred.

But the champagne flowed and soon salved over the abrasions. When it was over, the bankers were of one mind again. All we know is that the financial world is one “enormous uncertainty,” said one them.

It has been a year since the credit crisis began. By the look of things, it is far from over. JP Morgan, for example, said it was going to take an $800 million loss from its preferred shares in Fannie Mae and Freddie Mac.

More bad news is coming…

*** We took Jules to the train station this morning. He’s beginning his last year at school in Boston.

“What are you going to do next year?” we wondered.

“I don’t know…maybe get into a master’s program. That’s what all my friends are doing. They don’t even ask whether you’re going to do a masters…but where. But I don’t see the point of it. I really have no idea what I’m going to do…”

“Well, I guess you should use this year to try to figure out what you want to do in life.”

“I’d like to…but I don’t even know how you figure these things out. So far, nothing interests me enough for me to want to make a career out of it. But I know I’m going to have to do something. And I’m afraid I’m just going to have to fake it…to pretend to be interested in something…because I’m really not very interested in anything…so I don’t know what to do.”

“Don’t worry about it, Jules,” came the fatherly advice, “what usually happens is that you begin doing something first…then, you become interested in it.”

We put Jules on the same train Henry had taken two days earlier…and waved goodbye.

The stationmaster, a man with black hair and a black mustache, smiled. (It is a very small train station).

“You’re getting rid of them all. Yesterday, your wife was here sending someone off…I guess it was her brother. I guess the children are going back to school. Too bad. It’s always kind of sad at the end of the summer.

“Mothers usually…they come in with their sons and daughters. They get tears in their eyes. Not all of them, of course…some seem pleased to get rid of them.

“But I don’t think your wife was very happy. She probably feels like now she’s all alone at the house…well, with you…ha, ha..

“And the weather is changing too…there was a mist over the fields this morning. That’s what we get in the autumn…well, you know…you’ve been here, what, about 15 years I guess? Yes, the leaves are turning yellow…and we get that mist rising from the river and the fields. This is my favorite time of year; it slows down around here. And the weather is still pretty warm, but the nights are cool…people are wearing sweaters…and look down there…(he pointed down the tracks to the house next door)…you see that? Apples. They’re hanging over the fence. Sometimes I just go down there and pick one, when I’m waiting for a train…that’s what’s nice about the autumn. Apples on the trees…

“Well, it’s always the same…everybody comes down here in the early summer. First, the adults. And then you see them at the station picking up their children, coming back from school or from their jobs…and everybody is happy…then at the end of the summer…I see them at the station again. The kids take off…and then the parents…and grandparents.

“And the mothers cry…”

Until tomorrow,

Bill Bonner
The Daily Reckoning

The Building Storm: Gold, the Dollar and Inflation originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

As the Dow was plummeting from 14,000 to less than 12,500 (nearly an 11% haircut), gold was also dropping, though not so steeply. The metal fell from a high of $683.50/oz on July 20 to an intraday low of $640 on August 16, a decline of 6.4%.

For a while, the correlation remained tight as investors rode alternating waves of optimism and pessimism about stocks and gold. Equities up, gold up. Equities down, gold down. Set your watch.

This correlation was due to a number of factors.

For example, the need for hedge funds and other institutions to sell anything with a bid – for instance, gold – in the scramble to build liquidity in suddenly (and surprisingly so) illiquid bonds and commercial paper.

Pressure on both equities and gold at the time can also be attributed to the dawning realization that (a) the credit crisis was real and, (b) it probably wouldn’t be terribly helpful to the global economy. Of course, when one worries about recessions and such, one thinks less of holding either stocks or gold. The former for the obvious reason that bad economic conditions make for bad business; the latter because anything that is supposed to be an inflation hedge can’t also be a deflation hedge, can it?

Though admittedly impatient to see the gold show get on the road, we were largely unconcerned by gold’s behavior. That’s because our eyes remained firmly fixed on the perfect trap set over the years for Bernanke’s Fed.

Like hunters of antiquity watching large prey grazing toward a large covered pit, the bottom of which is decorated with sharpened sticks, we watched the handsomely attired and well-groomed Bernanke and friends shuffle ever closer to the edge, their attention no doubt occupied by pondering the flavor of champagne to be served with the evening’s second course.

One minute pondering bubbly, the very next standing, wide-eyed and hyperventilating, on thin cover with decades of fiscal abuse cracking precariously under their collective Italian leather loafers. We can’t entirely blame Bernanke for the dilemma he now finds himself in; it was more about showing up to work at the wrong place at the wrong time.

Regardless, all of a sudden the Fed and many of the world’s central bankers found themselves faced with the rock-and-a-hard-place scenario we’ve been warning readers of for some months now.

Namely, raise rates – or even just do nothing – and the whole shaky structure of debt comes crashing down, pulling the global economy with it. Swing in the opposite direction by cranking up the printing presses to full speed and risk alienating foreign holders of an unprecedented six trillion in U.S. dollars, triggering a monetary crisis, also with global implications.

Watching the closely correlated moves between gold and the broader stock market in the early days of the crisis, however, had us wondering just when it would be that other purportedly intelligent market observers would figure out the nature of the Fed’s dilemma, and the inevitable implications of same. To wit, that when push came to shove, the Fed would almost certainly sacrifice the dollar.

The reasons for that conclusion are, at least in our thinking, obvious.

While the Fed and the world’s central banks could, after the initial round of rate cuts and cash infusions, switch course again and decide to simply sit tight, allowing a deep recession – or perhaps even a depression of 1930s depth – to clear out the monumental excesses now in the financial system, we don’t think they’ll find that option attractive, especially in the midst of a presidential election cycle. Instead, the law of relative unpleasantness strongly skews the odds in favor of the printing press option.

Specifically, they are now well aware of what sort of unpleasantness will almost certainly occur if they fail to feed the beast with greenbacks by the helicopter load. Collapsing real estate prices, closing factories, soaring unemployment and, given the size of the problems, a clear possibility of things spinning seriously out of control from there. Returning to my earlier metaphor, we’re talking a sure trip onto the sharpened sticks below.

Against that probability, they have the possibility that, by setting the printing presses on high speed, the Fed might alienate foreign dollar holders who, theory has it, have as much to lose from a falling dollar as anyone. So, maybe, just maybe, the foreign holders will hold tight, preferring to see their many trillions depreciate by, say, 10%, rather than taking a deeper loss by heading for the exits en masse.

And that provides the Fed just the intellectual cover needed to do what is, after all, its default mode – depreciate the currency. For the truth of that observation, look no further than the fact that the U.S. dollar has lost over 96% of its purchasing power since the creation of the Fed in 1913.

But there are additional reasons for the Fed to opt for a loose money policy. To name one, the U.S. is in the aforementioned presidential election cycle. Foreign dollar holders don’t vote, but heavily indebted Americans do. For another, a weak dollar will help make U.S. manufacturers stay more competitive (hey, it worked for the Chinese!). Finally, a weaker dollar benefits the government by allowing it to pay down its many debts in depreciated dollars.

Most people don’t fully appreciate how poorly the Fed has managed the currency since

cancelling the dollar’s convertibility into gold in 1971. That brazen act cut the ties between the dollar and any fundamental value, leaving only political restraint to underpin the dollar.

Regards,

David Galland
for The Daily Reckoning
November 11, 2007

P.S. Since its low in 1999, the price of gold bullion is up about 200%. By comparison, the American Stock Exchange index of gold stocks is up 556% in the same bull market phase! That’s profit-boosting leverage of better than 2-to-1… financial rocket fuel.

P.P.S. You can continue reading Mr. Galland’s essay, below…

— The Daily Reckoning Book of the Week —

The Demise of the Dollar – and Why It’s Great for Your Investments
by Addison Wiggin

This acclaimed book spent over a week in the #1 slot on Amazon’s bestseller list – knocking Harry Potter to number two. It then showed up on Barnes and Noble’s bestseller list and debuted on The Wall Street Journal’s Business bestseller list last week at #8!

The only logical next step was for the book to get on the New York Times bestseller list…which it and sat strongly at #5!

The Demise of the Dollar examines the reasons for the dollar’s slide – including the nation’s historic trade deficit, the euro, government spending habits, globalization, and other international factors – and offers an up-close look at the Federal Reserve’s attempts to “manage” the dollar’s value.

————–

THIS WEEK in THE DAILY RECKONING: The past seven days have been chock full of interesting tidbits from the markets…Ron Paul takes his public enemy number one, Ben Bernanke…the dollar hits another all-time low…and oil reaches an all-time high. We have all these stories catalogued for you, below…

11/09/07 – Question Marks Return for Investors
by Bill Bonner “It seemed too easy. Too obvious. Markets don’t usually work that way. People rarely get what they expect, because what they expect is already reflected in current prices. Instead, markets usually surprise us.”

11/08/07 – A Good Recipe for Bad Finance
by Bill Bonner “As near as we can tell from the news reports, what really happened is that the company’s erstwhile very profitable finance arm – GMAC – didn’t make as much as it had planned. Then, GM’s attempts to cook the books blew up in the kitchen.”

11/07/07 – Bedazzling Chumps with Fancy Formulae
by Bill Bonner “It was obvious to even a freshman math student that you can’t compute real risk…and that markets have feedback mechanisms than tend to short circuit any kind of broadly followed modeling technique.”

11/06/07 – Contractions Only Dollars Apart
by Bill Bonner “We are witness to something that doesn’t happen very often – like the eruption of a volcano…or the collapse of a bridge – the first stage of a credit contraction.”

11/05/07 – Pounds of Robust Flavor
by Bill Bonner “How come the pound is so strong? The English are spendthrifts too – just like Americans. They’ve loaded themselves up with debt – just like their yankee cousins – and now have the lowest disposable (after debt service) income in 10 years.”

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FLOTSAM AND JETSAM:

Awakening Day
by David Galland

The market finally seemed to see the light on Thursday, September 6, when a major divergence in the paths of gold and the broader stock markets occurred. On that day, the Dow dropped over 125 points while gold shot up more than $13 an ounce. And it continued up on Friday, Monday and Tuesday, with gold breaking through the $700 mark even as equities did little or nothing. That was the first time the two marched to different drummers since the crisis hit.

Since then, gold has gained a new appreciation in the investment milieu. When the stock market soared after the Fed lowered interest rates, so did gold. And when the market retraced, gold pushed higher still.

Even more cheering for readers of our monthly editions of BIG GOLD is that the market didn’t just come to its senses about the role that gold had to play in the unfolding crisis, it also remembered that gold stocks were, in fact, related to gold.

While still baby steps in terms of what we expect, this is exactly the sort of price action we’ve been expecting… an early indication that institutional investors are starting to move into large-cap gold stocks, the investment class that pops first to mind when the Wall Street crowd decides that gold belongs in the portfolio.

No matter which way things go, gold – as it has been for thousands of years – is the ultimate hedge in times of crisis. And the recent shift into the metal, and now to gold stocks as well, is a sign that increasing numbers of investors are learning to see it as such.

Editor’s Note: David Galland is the managing editor of the BIG GOLD advisory from Casey Research, one of the nation’s oldest and most respected organizations providing unbiased research on natural resource investments.

BIG GOLD is designed for conservative investors looking for an easy and lower-risk way to participate in gold markets through producing and near-production precious metals companies, ETFs and mutual funds you can buy and sell through your favorite discount broker.

What’s Going on With Gold? originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

KUWAIT BREAKS THE PEG

Years ago, I recollect hearing a successful currency speculator say that if you wanted to know what a government is going to do with its currency, listen to what they say they aren’t going to do… then expect the opposite.

On March 3, 2007, for instance, we had the following report out of Bloomberg:

“Saudi Arabia, the United Arab Emirates and four other Persian Gulf nations will discuss revaluing their currencies’ peg to the U.S. dollar before a proposed monetary union in the region in 2010.

“The states would only change the dollar peg simultaneously, U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi told reporters today. The six countries form the Gulf Cooperation Council and their central bank officials next meet in April. The other countries are Bahrain, Qatar, Oman and Kuwait.

“‘We will not act unilaterally,’ al-Suwaidi said in Dubai, U.A.E.”

On March 15, Bloomberg followed up with this…

“The dollar may also be buoyed after the six Gulf Cooperation Council members, which include Saudi Arabia and Kuwait, agreed not to revalue their currencies against the U.S. currency.

“‘We have no plans to revalue,’ Hamad Saud al-Sayari, the governor of the Saudi Arabian Monetary Agency, told reporters in Dubai today. ‘The U.S. dollar is still very important to us.’”

Apparently, someone forgot to copy the Saudis on the memo, because on March 20, Kuwait announced that it was tossing the dollar peg over the side and replacing it with a basket of currencies.

This will almost certainly lead to a domino effect in the Middle East, a move that would likely be warmly welcomed by the local citizenry there, and not so warmly welcomed by those in the U.S. government charged with maintaining the U.S. dollar hegemony.

And then there’s China…

On announcing last year that it was forming a new agency to help better manage its foreign reserves, China took pains to assure the markets that they were not doing so in order to begin unloading dollars. But then on May 18, it announced it was going to invest $3.3 billion in Blackstone, a private equity group.

Now, you can be assured that Blackstone is going to go all out to impress their deep-pocketed new partner. And it won’t impress them very much if they only buy U.S. stocks that have to then fight against the tide of a depreciating dollar.

In our view, this is just the beginning of a much larger strategy, the core of which will be trading out of U.S. treasury bills and into all manner of other investments… an international basket of stocks, natural resource deposits around the globe… pretty much anywhere and anything offers the prospect for a higher return with lower currency risk.

Or, if the currency risk is going to be taken, then the potential returns will have to offset those risks. Earning a 4.5% yield on a Treasury bond while taking a 10%, 20% or even 30% risk on the dollar doesn’t make a lot of sense to us. And, we expect, neither does it to the Chinese.

There are some very interesting implications in all of this. For instance, if the Chinese slow down their buying of Treasuries in favor of other asset classes, who is going to step up to take their place?

Of course, at the right interest rate, far higher than those on offer today, someone will. But then there’s that whole collapsing housing bubble thing.

The U.S. continues to be trapped on the horns of a dilemma, wedged squarely between a rock and a hard place. Raise interest rates to head off a devastating mass exodus from the dollar and sink the economy… or, lower interest rates to keep the economy afloat and doom the dollar.

Or, simply continue printing money like there’s no tomorrow, steadily devaluing the $6 trillion in the hands of foreigners, and hope no one will notice.

There are times, like today, that any reasonably astute observer can look to the horizon and see what’s coming. A monetary crisis is headed in our direction, and the pace of its arrival is, in our view, quickening.

Gold, and for more pep in your portfolio, gold stocks, are no longer an option but a prerogative – even for conservative investors.

Meanwhile, pay close attention to the comments of high government officials about their intentions on the dollar…

Regards,

David Galland
for The Daily Reckoning
June 5, 2007

Editor’s Note: David Galland is the managing editor of BIG GOLD, a new publication from Casey Research dedicated to helping investors profit from the developing bull market in precious metals – with an easy-to-maintain portfolio of conservative mid- to large-cap gold producers and near-producers.

You can learn about BIG GOLD and its unusual 3-month money-back guarantee by clicking right here:

BIG GOLD

Free Paris! Save the Humans!

There are two types of Americans. The most common pays close attention to the news…the opinion…the sports scores…the politics. The other type has no idea what is going on in public life. The latter is far better off.

The well-informed American turns to his regular sources of misinformation this morning and discovers two very important things:

One of the brightest stars in the firmament of humanity is about to go dark…at least for 23 days. But don’t worry about that; the whole human race may be extinguished, too. Yes, everyone’s favorite socialite and heiress has landed herself in the hoosegow in Los Angeles.

And, then, the whole world is going to Hell…

As the former, we are shocked and alarmed. What kind of police state is America turning into? If you can’t drink and drive anymore…what can you do? Soon, you won’t even be able to blow smoke into your boss’s face, pinch the secretary…or take a handgun on an airplane.

Free Paris, we say. Free America!

The newspaper consumer also discovers that the whole earth is in danger. Yes, that’s right. Humans are now an endangered species. We have to fight to save the planet. From what? From rising temperatures.

Why rising temperatures are a threat to this old ball has never been fully clarified. You’d think that about as many people would prefer a little extra warmth as would loathe it. But no matter, global warming is said to cause all sorts of calamities.

“You know, there are only 12,000 penguins left,” Henry announced yesterday, after reading a report in the French press.

“Twelve thousand seems like more than enough,” we replied. “I mean…how many penguins do you need?”

“Dad, the penguins are endangered by global warming,” Henry persisted. “If we don’t do something to stop it, they might all disappear.”

“Wonder why they didn’t disappear the last time the earth hotted up,” was our comeback.

But a lot of people take global warming seriously, especially in Europe. And if you read the newspapers, even you are likely to begin worrying about it. The International Herald Tribune has a special section on the Greening of the Planet that has been running for a few days. This week’s Economist’s cover announces “Cleaning Up”, leading to a report on how business is tackling climate change. Even our own MoneyWeek magazine, in London, offers a cover story – perhaps a little more skeptically, if not more cynically – on how investors can profit from the world’s headlong rush to green.

Our energy guru, Harvard-trained geologist and soon-to-be-nonpracticing attorney Byron King, is in Alaska this week for a private tour of Prudhoe Bay, looking for innovative energy investments, for his soon-to-be released service, Energy and Scarcity Investor. Find out how you can begin receiving it for free.

Meanwhile, on the chilly banks of the North Sea in Heilgendamm, Germany, the heads of the world’s most powerful countries will meet this week. The number one item on the agenda – yes, keeping the world from going to Hell.

We are indebted this morning to Ban Ki Moon, who in case you have not been following the spectacle closely enough, is both the current secretary general of the United Nations and a man upon whom gravity seems to have no effect. Even with the weight of his office under his soft derriere, Mr. Moon threatens to spin out of orbit. Writing in the IHT, the U.N. man asserts, “The science is clear. The earth’s warming is unequivocal; we humans are its principle cause.”

How Mr. Moon knows these things with such certainty is not revealed. But he goes on…

“The time for action is now. The cost of not acting, most economists agree, will exceed the costs of acting early, probably by several orders of magnitude. The damage Hurricane Katrina inflicted on New Orleans may or may not have anything to do with global warming, but it’s a useful caution nonetheless on the financial and social perils of delay.”

Meanwhile, Germany’s Chancellor, Ms. Merkel, wants the Group of 8 to agree not to allow the world’s temperature to rise more than 2 degrees centigrade. We know that our governments can control the rate of inflation – with wide variations and occasional blow-ups. But this is the first time we’ve heard that they can control the temperature of the planet! Details to follow…we suppose.

But leave it to our favorite columnist, Thomas L. Friedman, to come up with the most asinine comment of all: “…it is inevitable that manufacturing clean, green power systems, appliances, homes and cars will be the next great global industry. It has to be, or we will not survive as a species.”

We stop there for a moment. Like a prizefighter staggered by a blow to the head, after a wallop of absurdity like that it takes a minute to recover our senses.

We’ve always admired Mr. Friedman’s ability to look into the future and then come up with ways to improve it even before it happens. The columnist then gives his list of policies designed to save us from extinction – such as having the U.S. government buy more solar and wind power, “with only US-based manufacturers able to compete for contracts.” You’d think that with the survival of the whole human race at stake, the man might permit, say, the new super-sized U.S. embassy in Baghdad to buy a little juice from a local entrepreneur…but that’s Friedman; no idea he comes up with is so idiotic that he can’t make it worse by getting into the details.

In spite of all this hot air, however, we admit that on many occasions, there may be a real problem. If we light a fire we get the benefit of the warmth; but the smoke goes up the chimney. And if enough smoke goes up the chimney, bad things could happen to other people. They could choke, cough and curse the man who lit the blaze. The honest thing to do would be to fess up and pay for the damage we’ve caused – if any.

The trouble with global warming is that we’re not sure that there really is any damage; and if there is, we’re not sure if it is possible to stop it…or even worth stopping. People light fires to warm their hands; if they are prevented from lighting a fire…the loss would be immediate (the poor man’s hands would be cold). The gain, on the other hand, may be illusory.

So many questions. So few answers. Global warming may be 90% huff and humbug, but you can be sure of one thing: there’s so much money and power at stake, people will spend a lot of time trying to get some of it.

More news:

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Addison Wiggin, reporting from Charm City…

“Two independent studies were released yesterday, both predicting staggering growth in India in the coming years.

“First, American Express predicted that India’s 100,000 ‘dollar millionaires’ will grow by 12.8% a year for the next three years. That’s a whole lot of rich Indians. What’s more, McKinsey Global Institue predicts that the average Indian’s income will triple by 2025.

“Consequentially, 300 million Indians will come out of poverty and cause the middle class to grow by 1000%.  That’s over 583 million middle class Indians… almost double the entire population of the United States.”

To find out how you can get a ‘front-line’ perspective of the investment opportunities in India – and for more market insights – see today’s issue of The 5 Min. Forecast

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And more thoughts…

*** With winds of 160 miles per hour and gusts of 195 miles per hour, Cyclone Gonu, which is expected to be the strongest ever recorded in the Arabian Peninsula is heading toward the oil-rich Persian Gulf off of Saudi Arabia and southern Iran.

While it is unclear whether or not the storm will hit the region’s important oil installations head-on, or lose momentum before getting to the Persian Gulf, our commodities guru, Kevin Kerr, is still a bit worried.

“Why might Gonu matter?” Kerr wrote us this morning.

“Well, that answer begins with the fact that the world production of petroleum plateauing around 85 mbbl/day, any slight blip in supply or exporting could be quite noticeable on the world markets. A sizeable portion of the world’s petroleum exports go through the Gulf of Oman.

“Particularly, Oman matters in this because it produces 743,000 bbl/day; Oman is also a net exporter, non-OPEC, whose production peaked earlier in the decade.

“Of course, this storm also has the potential to affect Iran, UAE, India, and/or Pakistan for that matter – mainly because of shipping disruptions, but there could be some real effects on infrastructure and assets depending on track and landfall. There are also refining and other production assets in Southern Iran, especially in Chah Bahar.

Accuweather reports:

“No cyclone has ever entered the Gulf of Oman. And there are no custom ’storm surge’ models available for that area. This forecast is based on my experience and subjective analysis of the seabed slope and storm surge interaction with the sea floor. Considering the region has never experienced a hurricane, let alone a strong one it is highly unlikely the loading facilities or platforms were constructed to withstand the forces – both wave action and wind force – that they will experience. Significant damage will occur. How much long-term damage, and the volumes associated with it – can not be determined at this time.”

“Oh man, Oman,” says Kevin.

Kevin has been our expert on hurricanes and their effect on the commodities and resource markets for quite a while – sometimes reporting directly from the scene (he was in Florida when Hurricane Dennis, Katrina’s precursor, hit back in 2005). Kevin’s insights and analysis are almost always spot-on, which is why he makes frequent appearances to CNBC, CNN, FOX News and the like.

Kevin manages to keep himself very busy…between media appearances, and a MarketWatch column, he also runs a commodity options trading service, Resource Trader Alert, and co-edits, along with Byron King, Outstanding Investments. Now, for a very limited time, you can receive both of Kevin’s newsletters, Byron’s new service, which we talked about above – and all Agora Financial’s trading services and newsletters for life!

We call this lifetime package the Agora Financial Reserve, and we only open up this exclusive service to new members twice a year – and this is the last time we will offer the Reserve at this low price.

Another added benefit to the Reserve is on top of all of receiving Agora Financial’s world class investment research, Reserve members have exclusive access to very unique and small opportunities around the globe…like the AF Investment Symposium in Vancouver.

*** Back to the economy…and the markets…

The 20th century saw the first of the World Wars – I and II.

The 21st century is witnessing the first of the World Bubbles. What market is still unaffected by the current mania? What major company has not been boarded by the private equity freebooters? What asset rests quietly immune from the bubbly prices…still priced at reasonable levels?

Everywhere from Baltimore to Bombay, people yearn to get rich in the worst way – by speculating.

Like the World Wars, this bubble is far bigger than the ones of previous centuries. More people are involved. More assets…more money…more companies…more currencies…more banks…more everything! And like the World Wars, this World Bubble threatens to do far more damage than anything that came before.

The Dow hit another record high yesterday.

*** Paris Hilton is not the only one to be nabbed by the law lately. The International Court of Justice in The Hague is trying Charles Taylor for crimes against humanity. Taylor is a descendant of American slaves who was educated in Boston, and who then returned to Liberia.

You see, dear reader, not only is America no longer safe for dissolute heiresses, now the world is no longer safe for dictators either, unless they are dictators of large countries. Taylor committed an untold number of atrocities during his rampage through West Africa…and left about 300,000 dead. Hanging would be too good for him. He should be forced to watch television!

But you have to hand it to him. No man ever ran a more honest election campaign. The French paper, Liberation, reports:

“In 1997, Taylor, the former chief of the rebel group, the National Patriotic Front of Liberia, was elected president. His campaign slogan – ‘He killed my dad. He killed my mom. I’m voting for him.’”

Taylor let it be known that if he were defeated, he would set fire to the country and kill everyone in it.

*** So much hokum…so little time. We can barely keep up with it. The Americans with their preposterous War Against Terror…the Europeans with their Global Warming.

But rest assured, though we are skeptics as to both of these sordid obsessions, we will do our part. If we see a man with a suspicious-looking wooden leg, or a grandmother with a suspicious-looking bag of cookies…we will call the police. And if we see Paris Hilton, loose on the streets of Paris, France, after somehow escaping from the slammer in L.A., you can count on us, dear reader; we will do our duty.

All over the world, companies are parading their ‘green credentials’ as if they were bringing in escaped prisoners. One switches to electric delivery vehicles (as if power from power plants were less bad than power from an internal combustion engine). Another celebrates its new billion-dollar office tower, with its fancy green-conscious systems (forgetting to mention that it actually consumes more energy…not less…than the old headquarters). Everybody is going green.

We are also going green here, too, at the worldwide headquarters of the Daily Reckoning – whether we want to or not. Your author takes public transport to the London office in. His assistants ride bicycles. Some walk to work.

In Paris, the city is putting 20,600 bicycles on the streets. You pay a fee of about $60 a year, we were told, and you have the right to pick up a bicycle at one of the many stands around the city and forget to leave it off at another.

We recycle paper, too – great piles of it. And we turn off the lights at night. And turn down the heat.

Proof of our Green Good Citizenship comes from our new South American headquarters-building out at the ranch. It is so green, we are practically the Jolly Green Giant of financial publishing. There, hard up against the Andes, we are 100% environmentally friendly (if you ignore the noxious gases used to fabricate and install our solar power system). Besides, we had no choice; there were no power lines to grab ahold of. We had to put in solar-heat…and solar electricity…and take our water directly from the stream running down the mountains. Which just goes to show what a fraud this stuff is. We can advertise our Green credentials…even though the real environmental impact – as measured by the cost of the system – may actually be greater than that of a typical house on the grid.

———————

Kuwait Breaks the Peg originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

THE SPECULATION OF A LIFETIME

Here at Casey Research we come across three types of investors.

By far the largest group would identify with the phrase “go along to get along.” They invest in “ideas” from their broker and mainstream financial rags. If feeling adventurous, they tune in to Cramer’s Mad Money for a hot tip.

There is, in our view, much wrong with that approach. For starters, a broker is paid to move stock and generate commissions, a built-in conflict of interest. And once a stock gets written up in Forbes or shouted up by Cramer, it is the exact opposite of a “hot” story.

The second group are the dice-rollers. They buy touts from telephone salespeople and haunt the financial chat rooms looking for “home runs.” In their youth, they were the “opportunity seekers” who sent away for the kit guaranteeing a six-figure income from the comfort of a living-room chair. There isn’t much one can do for them. They will either learn their lesson on the cheap and reform, or lose all or most of what they have.

The third type is the rational speculator. This rare breed understands the key tenets of serious investment success. In no particular order:

You rarely get hurt paying less for an asset than it is worth… and just because no one seems to want it at the moment doesn’t mean it’s worthless.

Risk and reward are linked. While not all risky ventures hold the promise of high returns (e.g., sending money to a Nigerian bank in the hope of receiving a fortune is all risk and no potential return), all investments offering high returns carry higher risk.

Understanding this link, savvy speculators do their homework to understand the risk side and, where possible, reduce it.

Think contrarian. That is the polar opposite of getting your investment advice from mainstream media. When Doug Casey first spotted the spectacular upside for uranium stocks in 1998, nuclear power was being universally shunned. But Doug saw what others didn’t – that (A) nuclear was the only practical mass power alternative, (B) uranium had fallen so out of favor, and its price beaten down so low, almost no exploration was being undertaken, even though (C) supplies were being drawn down to critical levels.

In hindsight, spotting that speculative opportunity seems a no-brainer. And, if you had been thinking like a contrarian and avidly studying out-of-favor markets, it would have been.

There is one final tenet to keep in mind about speculation.

Most people invest 100% of their money in the hope of earning a 10% return. A rational speculator, on the other hand, looks to invest just 10% to 20% of their money in investments that hold the potential for a 100% or better return.

Over the last two weeks, I’ve heard from two old acquaintances whose retirement nest eggs – millions in all – were wiped out by a series of bad trades in traditional stocks recommended by their mainstream brokers. A rational speculator, even after a complete wipe-out, would still have 80% to 90% of his money to start over with.

Now let me bring all these points together in a way that could hand you returns most investors would consider outlandish. In fact, it may be the best contrarian speculation of your lifetime. It starts by answering a simple question…

When asked about the outlook for the economy, most investors will answer something to the effect of… “My broker at XYZ Securities thinks the broad U.S. stock market still has a good run ahead of it.” In other words, they leave their thinking about the future to their brokers, the individuals who tend the myth of the permanent bull market (perhaps gently interrupted by occasional “soft” landings).

Which brings me to the speculative opportunity.

Simply and for some good reasons, take the contrarian side of the mainstream broker’s trade by investing in the sector that historically does best when the economy does worst: precious metals and, for serious leverage, carefully selected precious metals stocks.

Remember, the potential is so great that no more than 10% to 20% of your portfolio is required.

Here’s what you’ll be betting on.

1) That the Fed won’t be able to juggle the Mt. Everest of debt, the deflating housing bubble and the potential stampede out of the U.S. dollar by foreigners. Something has to give, and we think it will be the dollar… inevitably good for precious metals.

2) That because – for the first time in history – the unbacked currency of one nation (the U.S.) is the de-facto reserve currency of all the world’s central banks, a collapsing dollar will lead to a global monetary crisis.

3) That the current war in the Middle East will have serious and long-lasting consequences that require massive new infusions of money on top of already out-of-control government spending. And the fighting may trigger a larger conflagration that sends oil over $100… a highly inflationary outcome.

There are more reasons to make your contrarian bet on precious metals just now, but those should suffice, given the space available here.

But There’s More…

Your contrarian bet gets even more compelling when you consider that, historically, gold bull markets last a minimum of ten years. Gold bottomed in 2001, so we are just a bit over 5 years into the current bull market. And, based on the historic dislocations in the global economy, we don’t think that this bull market will be anything close to “average.”

One important early result of the bull market in gold and silver is that the junior exploration sector has been energized by an infusion of new capital. Serious exploration and drilling programs are already running on serious targets.

It has taken time and patience, but that patience is about to be rewarded, as exploration programs head into their advanced stages – where we can actually see which companies have found deposits big enough and rich enough to be mines. In that regard, 2007 should be a banner year… and you definitely want to place your contrarian bets before the newest crop of discoveries are announced in the weeks and months just ahead.

Historically, when you match up a bull market in precious metals with major mining discoveries, you get the kind of roar that can turn your speculation into a fortune.

The mere fact that you are reading this hints that you are thinking about jumping on the precious meals bandwagon – but don’t stop thinking like a contrarian. Keep this most important point in mind: not one in ten U.S. investors currently owns a single gold stock. They know nothing about them, but they do have brokerage accounts and they do like a good story.

As the U.S. dollar comes under pressure – as it must – the story of gold and silver as alternative stores of wealth will begin to make the rounds, and it will be a story that tells very well. At that point, public interest will soar, and the contrarian bet you make today will start flying on afterburners.

Early pays. Early pays big. So the time to act is now, before the stocks get pricey – not when you are hearing about junior precious metals explorers in Forbes or from the mouth of Jim Cramer on Mad Money. At that point, the tide will already be cresting, and we’ll be cashing in on what now is shaping up to be the speculation of a lifetime.

Regards,

David Galland
for The Daily Reckoning

David Galland is the Managing Director of Casey Research, LLC., publishers of Doug Casey’s International Speculator, one of the nation’s oldest and most respected publications dedicated to identifying rational speculations with the very real potential to earn 100% or more in a year or less. Do you have what it takes to be a rational speculator? Learn more about a risk-free 30-day trial subscription to the International Speculator - click here now:

International Speculator

Yesterday was budget day in the United States. The Bush Administration revealed itself – once again – to be the biggest spending regime of all time. No government ever spent so much. No government ever increased spending so much. No government ever redistributed so much wealth – from the taxpayers to the defense contractors…from renters to home owners…from the middle classes to the financial classes…and (most importantly) from future generations to the folks living right here and right now.

The Bush budget includes about three quarters of a trillion dollars for defense. But defense has little to do with it. Defense against whom? A disorderly bunch of fanatics with explosives around their waists and box-cutters in their hands? The amount of money in the ‘defense’ budget earmarked for these guys is trivial. And rightly so…the danger they represent is trivial. No dear reader, the defense budget can better be described as hundreds of billions of dollars we don’t have, to buy weapons we don’t need, to fight enemies that don’t exist.

The whole spectacle is breathtaking…and, like all public spectacles…absurd.

Nearly half a trillion in debt will be added over the next two years according to the Bush plan. Americans have neither the will, nor the money to ever repay it. They cannot even keep up with the interest payments. So, now the debt feeds on itself.

For one year, the budget includes 624.6 billion dollars for defense. To help put that in perspective, here’s an interesting tidbit: the defense budget is more than the budgets for the Department of Education, Agriculture, Commerce, Energy, HUD, Interior, EPA, Homeland Security, Justice, State, Transportation, Labor, NASA, Engineers, Judiciary, and VETS. COMBINED. And with 63 billion left over.

And yet…people still buy long-term U.S. government debt yielding less than 5%! Go figure.

The whole thing just keeps getting bigger and bigger. It is not just a single bubble…it is a whole cluster of mega-bubbles…in property, in art, in stocks (especially Chinese stocks)…and a Hyper Bubble in worldwide liquidity!

What is going on? Why doesn’t it pop? We have our ‘Crash Alert’ flag flying from The Daily Reckoning flagpole. But no one even bothers to look up.

We thought about it last night…pausing only for prayer and alcohol. What we were looking for was an answer to the age-old question: Why are so many people so stupid? When we watch TV or read the news, we find views that would make an imbecile blush with embarrassment…numbers that would make a sober man gasp for air.

What bread do these people eat? What air do they breathe? Why are they allowed out in public?

And yet, when we meet them, we discover that they drive cars…they have jobs…they manage their own checkbooks. How is it possible? We have always wondered.

And we think we have found the answer.

The Inverse Square Law: Useful intelligence decreases by the square of the distance from the facts.

Like gravity.

If a person issues too many I.O.U.s, lenders catch on quickly and cut him off. When a bank issues too many notes, word gets around. Depositors get jumpy. Then, they take out their money…and the bank fails. This used to happen all the time before the Federal Reserve System was set up.

Likewise, if a country spent more than it could afford, gradually, if not immediately, people holding the nation’s currency would begin to sweat. Then, they would sell the currency for others, or for gold. Interest rates would rise…and the problem would correct itself – either gracefully or calamitously.

But now with this new imperial money, un-backed by anything but faith, people are so far from the facts, they don’t know what to make of it. Can the United States go broke? If it could, how come it hasn’t? None of us has any idea how many dollars walk the earth…nor how much each one should be worth. The banker in Japan…the hotel owner in Paris…the speculator in Madrid – they are all fools.

But do yourself a favor, dear reader – look up. Incline your head towards the top of our Daily Reckoning mast. There, you will find our ‘Crash Alert’ flag still flying proudly, and singularly. We may not be right about this today or tomorrow…or even for many months. But we will be right about it eventually…and importantly.

More news:

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Chuck Butler, reporting from the EverBank world currency trading desk in St. Louis…

“It looks like the latest retail sales report from the United Kingdom has the pound moving higher versus the dollar, and the other currencies are following the pound’s lead. U.K. retail sales for January increased at the fastest pace in six months.”

For the rest of this story, and for more market insights, see today’s issue of The Daily Pfennig

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And more thoughts…opinions…

*** Our family is still discussing a taboo subject: Money.

Pater Familias is trying to cinch up the family belt. The rest of the family is for loosening it a notch.

“Just because you have money is not a good reason to spend it,” he argues. “We have always lived modestly, we should continue to do so.”

Here, he was playing fast and loose with the facts. Having a chateau in France is not exactly a modest way to live, at least not by most middle-American standards. But standards have a way of slipping.

Most of the family seemed unaware that there was anything extravagant about the way we live. The boys think that everyone has a chateau. Besides, their friends seem to live even more extravagantly. One gets an allowance of 100 euros a week. Another got a new car when he turned 18. Still another has the family credit card…with no spending limit (or so we were told).

The boys want to know why we can’t keep up with these Joneses. And to them, a chateau is hardly a symbol of excess; it is a symbol of drudgery. They have painted too many shutters and toted too many stones to regard the place as a luxury.

“Dad,” said Henry. “Why wouldn’t you want to live as well as you can? What do you want to save money for? So you can spend it later? Why not spend it now, when you can enjoy it. If you wait…you might be too old to enjoy it…or you might be dead.”

*** “Don’t mention the war…”

We have with us this week a German boy, Peter, aged 15. He is a handsome, polite fellow, who looks for all the world like the young man in Norman Rockwell’s famous painting of a farm boy going off to college. He’s an exchange student, with whom our son, Edward, stayed in Germany.

The exchange program is part of a European Union plan to foster a more cohesive continent. It is supposed to give French children an opportunity to speak German and learn more about German culture, and vice versa. But since both boys speak English, all conversations, both in the Hinzell household and in ours, have been in our native tongue.

This past Sunday we took Peter on a little tour of Paris.

“Let’s not go there,” Elizabeth whispered as we entered a park behind Notre Dame Cathedral. “There’s a memorial in there to the French Jews who were deported during the war…”

“Maybe that’s where we should go…he might learn something…”

“I’m sure he’s already aware of what happened in World War II…and we don’t want to make it seem like we’re making a point or something. Besides, it’s not as if we believed in collective guilt…and the whole thing happened 50 years ago. Why make him feel uncomfortable?”

*** We went to mass in Notre Dame and couldn’t help but compare it to Canterbury Cathedral, where we had gone a few weeks ago. Both are spectacular…but Canterbury is much brighter inside. It is built with lighter stone, with a warm yellow hue, and has great windows all around the upper reaches. Notre Dame, by contrast, is dark, mysterious, forbidding.

Overwhelming…secretive. We could easily imagine hunchbacks riding on its colossal bells…and gypsy girls hidden in its alcoves.

Around the edges of Notre Dame you will find monuments and remembrances of various saints…while in Canterbury, it is soldiers who are honored – those who served the empire in various outposts and garrisons.

Surely the English and the French worship different gods.

*** A smoker replies:

“I wonder when the collapse comes, how many people will wish they had a smoke to smoke? You don’t smoke and that’s your decision; I do and that’s mine. That’s why this (was called) ‘the land of the free’ at one time in history.

“When people begin wondering if they will have bread to eat, I wonder if all the idiots who pass laws for ‘the public good’ will be more worried about where their next dollar or meal will come from? Pass more laws so you can ‘feel good’ about squeezing all you can out of poor people. Funny how they pass laws about smoking in public etc., but then they put a $10 tax on a carton of cigarettes? They still get cigarette taxes and want them?

“Of course, this is to discourage people from smoking ‘they say’. I’m not saying smoking is good, but I should have the ‘freedom to choose’ whether I want to or not, and you should be able to choose if you want to enter a business that allows smoking. I could go on about all the other so called ‘do-gooder laws’ but I won’t rant and rave.

“I think Americans will take whatever is dished out to them these days. But when the collapse comes, their minds will shift to self-preservation, I will guarantee that! I am amazed that they have been able to stall the collapse for so long. This time it will make The Great Depression look like a cake-walk. ‘Let Them Eat Cake’ comes to mind. By the way, Bogart would not have been Sam Spade without a cigarette. Paul Newman had a line in a movie I’m reminded of als ‘We all have to die, it’s just a matter of when.’”

The Speculation of a Lifetime originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.