Casey Research – Gold Silver & World Views
Scrolling feed from Casey Research Daily Dispatch – news views and insights from one of the industry’s best.
- Fri, 06 Dec 2013 10:52:00 +0000: The Age of Entitlement - Casey Research - Research & Analysis
In today's missive I want to touch on the topic of entitlements. Not just the material facts of the "Entitlement Economies"—but the roots and consequences of an economic model increasingly dominated by state-sponsored subsidies.
As background, the idea for today's musings came to me after receiving an email from a fellow with whom I have a faint business connection. Based on the dripping tone of his email, he appears to have come to the conclusion that our several-times-removed relations means I should be vigilant for opportunities to bow and scrape at his feet.
It's not that he is a bad fellow; rather, it seems he's the sort who conflates wealth with privilege. And something far more destructive… entitlement.
As I suspect it will take a bit of musing to do justice to the topic, I'll get right down to business, listening as I do to one of my favorite (somewhat) oldies but goodies from the catalogue of dramatic music, Eminem's Lose Yourself, the theme song from his rather well-done biopic, 8 Mile.
The Age of Entitlement
My dear friend, business partner, and now neighbor here at La Estancia, Doug Casey, regularly stresses the importance of starting any discussion by defining the important terms. As we'll be discussing the matter of entitlement today, let's kick things off with the definition from Merriam-Webster:
- The condition of having a right to have, do, or get something
- The feeling or belief that you deserve to be given something (such as special privileges)
- A type of financial help provided by the government for members of a particular group
In its morally correct form, a person is perfectly justified in feeling entitled when they have a clear contract providing them a specific right.
For example, if you as an employee have a contract with your employer that specifies the terms of your employment and you don't break the terms of that contract, you are legally and morally entitled to receiving the benefits therein specified.
Of course, things are not always quite so black and white. For instance, those of you dear readers living in the US who have spent a lifetime paying into the Social Security system may be justified in feeling entitled, upon attaining the requisite age, to the promised income stream. Yet, given that everyone has ready access to a large number of analyses exposing the viability of Social Security as poor fiction, should you really feel entitled? Or just hopelessly gullible?
But I drift. Yanking the tiller back toward the general compass point I am tacking toward, I would like to start by briefly touching upon some of the classes of people that believe themselves entitled.
And not just entitled to a single payday or a specific benefit, but rather, they appear to feel permanently entitled.
I will then try to round up all the characters into a larger corral where we can explore the consequences of the growing entitlement classes.
The Warped Wealthy. That sound is my fingers furiously tapping out a caveat that most of the financially successful individuals I know—in particular, those whose wealth resulted from hard work and taking big personal risks—are down to earth and appreciate everything their wealth allows to them. They know how much work it takes to amass significant net worth and further understand that, short of winning the lottery, the average person with average aspirations and an average tolerance for work is unlikely to achieve true financial freedom, and they are empathetic toward them.
That said, I have come across any number of wealthy individuals who enjoy nothing more than lording their good fortune over the rest of humanity. More often than not, the wealthy who fall into this subset made their fortunes by being in the right place at the right time, for example dot-com millionaires or members of the lucky-sperm club.
In an earlier derivation of my life, I spent a fair amount of time hanging out with captains of Wall Street, the sort with houses in the Hamptons and whose hairs are coiffed in scented salons by people named Oscar at $400 a go. In many cases, the source of their wealth could be traced back to university connections that landed them in the upper echelon of the equivalent of a pyramid scheme where, with hardly having to lift a finger, a fraction of a fraction of billions of dollars in transactions flowed daily into their Savile Row-stitched pockets.
Regardless, the warped wealthy not only expect full value for money, they want everyone their shadow falls upon to be diffident and to cater to their every whim. Failure to show proper appreciation that you are in their company will, as sure as night follows day, get you a dismissive sniff or, if it's a bad hair day, a proper dressing down.
While I begrudge no one their wealth, per above, when someone begins to conflate wealth with entitlement, I have a problem.
Politicians. When living in Louisiana years ago, I was invited to a cocktail party where I was introduced to a somewhat overweight and sweaty individual wearing the only suit in the room. Making small talk, I inquired as to the nature of his work, and he proudly announced that he was an aspiring politician (at which point, I made my polite apologies to attend to urgent business on the other side of the room). Yet, if the sweaty schlep actually managed to attract a sufficient number of votes, he would have been promptly promoted to a class of individuals entitled to a long list of benefits. Including—should he rise high enough within the political machine—ready access to private jets and a lifelong pension.
On a lower level, while lifelong pensions have all but disappeared in the private sector, by virtue of just showing up at the office each day for a few years, many bureaucrats become entitled to the equivalent of tenure and, upon concluding their "public service," a comfortable pension.
Yuppies. A travel industry professional once shared with me what is apparently common knowledge among his peers: Yuppies are the worst travelers. I have personally witnessed the truth of that statement many times over, most noticeably when a flight is canceled or a hotel overbooked, inconveniencing a yuppie in the process.
At which point, I find it entertaining to observe the yuppie's antics as they attempt to argue the plane back on schedule, or to browbeat the hotel manager into coming up with a suitable room.
In my opinion, this sense of yuppie entitlement comes from the near certainty that never before in the history of the world has there been a generation that has had things as soft and sweet as the yuppies/baby boomers.
Sure, there was something of a blip during the Vietnam era, but other than that we've had a lifetime of prosperity. And with the exception of Vietnam and out-of-sight-therefore-out-of-mind sport wars that other generations have been willing to fight, peace.
We got to go to college if we were so inclined, and we were ensured gainful employment whether we went to college or not. Unfortunately, a large number of yuppies don't fully appreciate what an historical rarity such a long period of peace and prosperity is. They will be in for a rough awakening as Pax Yuppie is rapidly coming to an end. Their future expectations, understandably based on past experiences, are likely to be disappointed.
Even so, for the time being, they continue to feel entitled to a life path free of serious bumps, though the unnerving sound of footsteps approaching down the empty hallway scratch at the edge of their collective consciousness.
Old People. Over the last century, responsibility for the care and feeding of the elderly has been steadily transferred from families to society at large. This alteration of the social contract, though likely springing from good intentions, is manifested in the widespread attitude that the state should provide at least a baseline level of support for the elderly, even if the state can't actually afford it.
This sense of entitlement is underscored each election day when the oldsters turn out in droves to reward politicians who confirm them in their benefits, and punish those that even hint at curtailing same.
The Poor. Like the elderly, over the past century the social contract was redrafted to include a long list of benefits for individuals who steadily fail to achieve a certain income threshold. Collectively, the number of programs and their reach is staggering. To provide just one example, upwards of 50 million people in the United States are now entitled to purchase their daily bread using debit cards linked to the public treasury. The chart here presents a picture of entitlements gone wild.
"Special" Groups. At the risk of offending a wide swath of dear readers, I would bring your attention to your fellow citizens who use their specialness to demand special rights and entitlements. To name just a few…
Minorities. For example, though at its peak only 8% of American families owned slaves and the practice was terminated by constitutional amendment almost 150 years ago, many descendants of the slaves continue to believe they suffer transgenerational trauma and are entitled to government remediation programs without end.
The forms these entitlements to minorities take varies from cold cash to preferential treatment in college admissions and a broad rainbow of other perks. Why, here's a story now about a group of university graduate students consisting largely of people "of color" who apparently believe that their special status entitles them to be able to submit university-level work riddled with grammatical errors, protesting that being graded on grammar contributed to a "'toxic' racial climate."
- Sexual Orientation. A fairly large subset of the populace seem to want to define themselves based on their sexual preference. Live and let live, I say. But why it is that this entitles them to special treatment is something of a mystery to me.
Soldiers. In the absence of the draft, no one has to sign up for military duty, yet upwards of 180,000 do each year. And once they're no longer needed or decide to follow other pursuits, they remain entitled to certain benefits for life. Not particularly large benefits, mind you, but special hospitals and a variety of programs to provide support.
Then there's the top brass who are cosseted in a system of institutional sycophancy replete with nervous salutes from the rank and file, and wining and dining by members of the military-industrial complex. The generals feel entitled to their billion-dollar toys and, mostly, they get them.
Pretty Much Everyone Else. Unlike earlier eras when stubborn self-reliance was a highly valued character trait, these days the vast majority of people in the US and other developed countries expect the government to provide benefits and services to cure all that ails.
Off the top of my head, a few examples:
- The government's exertions to keep our borrowing affordable by suppressing interest rates.
- The provision of free education and subsidies for college.
- Large departments dedicated to ensuring the safety of everything from cars to drugs to food.
- And, increasingly, widespread medical coverage, including cheap medicine.
I could go on and on, because the list of entitlements is nearly endless. Mind you, I'm not taking a position on the merits of specific programs, simply pointing out that they exist and have grown endemic. Taken collectively, they foster a culture of entitlement.
Though the woman in this rather disturbing video is obviously drugged out of her mind, I hereby nominate her as poster model for the Age of Entitlement. That by virtue of the fact that she vehemently believes it is her God-given right to be served Chicken McNuggets at 10:30 in the morning and, when disappointed, almost literally turns into a crazed zombie. (Once again making me appreciate the simpler life here in the Argentine outback.)
Truth & Consequences
If you accept as truth that we now live in an Age of Entitlement—an era whose hallmarks are widespread yet ultimately unaffordable and, therefore, undeliverable promises, benefits, services, etc.—then it behooves us to fill another gourd of maté and imagine where it all leads.
Before we engage in that exercise, however, it may be worthwhile to review a few supportive data sets, tidily organized into easily grasped charts.
First up is a look in the rearview mirror, compliments of KPCB, using data from the White House Office of Management and Budget. Note that the data have been properly corrected for inflation.
Next, we look into the future with the following from our own Bud Conrad, showing the projected growth in US federal spending, broken down to highlight the impact of key entitlement programs.
The important thing to note about Bud's chart is not the mountain of projected spending on the far right side of the chart. At upwards of $30 trillion a year, that's just not going to happen—at least not in dollars with anything close to the same purchasing power they have today.
What is important is:
- These projections are prepared by the Congressional Budget Office, an organization with a long history of wide misses to the upside on even its short-term forecasts, let alone those dealing with decades in the future.
Even using the CBO's
conservativelaughable projections, by the end of this decade—just seven short years from now—entitlement-driven federal spending will top $5 trillion per year… roughly twice the amount the feds currently shake the public down for each year. As bad as today's $1 trillion-plus deficits are, they're only going to get worse in the years just ahead.
In the simplest of terms, the wall that the US government is speeding toward isn't over some distant horizon. It's looming straight ahead.
Finally, I present the following chart from a solid article by Charles Hugh Smith titled Have We Reached Peak Entitlements? The chart, using data from the Fed, shows the nearly exponential growth in federal transfer payments in recent decades, revealing as truth that we are entering the hyperbolic phase in this Age of Entitlement.
I could present additional charts and data in support of my thesis, but I think the charts above—along with your own well-honed common sense—allow us to move on.
And I would like to do so by quickly stating the obvious about an economy—any economy—experiencing the sort of dramatic increase in private demand for public money (and costly services) we are now witnessing.
Namely, that as the percentage of the population demanding—and receiving—government largess and services grows, the burden on the government's mules (otherwise known as taxpayers) must rise as well.
Unfortunately for the revenue-starved government, layering on new taxes and tariffs has relatively little elasticity. Cross over a certain invisible line and, as is the case here in Argentina, people begin taking active measures to look after themselves by finding creative ways around paying up. Or they simply pack up and move to (tax) friendlier jurisdictions.
That's not to say that the feds won't tighten the tax screws—that's a given. Probably starting with a value-added tax (VAT), as that provides a stealthy way to shear the sheep without most of the sheep taking notice.
There has been much talk about the Fed "tapering" its quantitative easing, but given the limited elasticity in raising revenues just mentioned, the only real option remaining is for the government and its flunkies at the central bank to continue paying the bills using quantitative easing at more or less the current level. Maybe slightly less for a time, but as it's all but impossible to dial back the bulk of the entitlements—or, given the demographics involved, do much to retard their speedy growth—we can reasonably expect the quantitative easing to accelerate over time.
And that, dear reader, can lead to only one end: a collapse in the US dollar, with a cascading effect on all the fiat currencies.
That this will happen can be seen in the charts just above, which taken together clearly show that the growth in entitlements and the attendant federal spending is completely locked in. So who, exactly, is going to step up to the Treasury window and take the place of the Fed in buying all the paper the US government needs to move to keep the entitlements flowing?
The answer is no one—at least not at today's low interest rates. And as we have often discussed, even a return to historically normal rates in the US will produce an unmitigated disaster. To head that off, the Fed will ultimately have to go "all in" on quantitative easing. As it does, the dollar will begin to falter and then fail.
Should that occur—or, better stated, when that occurs—the reset button on the entire federal entitlement system will be pressed, and the Age of Entitlement will have to wind down. It is impossible to say with any certainty how things will unfold at that point, and having a military government moved into place in the hope of keeping the peace is not out of the question, but when the dust settles, the world will be a substantively different place.
Can the Entitlement Train Wreck Be Avoided?
In an attempt to answer that question, I now return to the groups singled out at the beginning of these musings and try to anticipate how they might react to any proposed policy changes that might discomfit them or require a reduction in their entitlements.
The Wealthy. Should the wealthy—those with feelings of entitlement or not—come to the conclusion that they're going to be called upon to carry ever more water for rest of the citizenry, they will react just as they always have. Namely, by hiring the best tax lawyers and accountants possible and exploiting every available loophole (and there are always loopholes). And/or they'll vote with their feet—moving themselves and, if push comes to shove, their businesses to friendlier shores.
That they will come under attack is a certainty. Just recently, the International Monetary Fund (IMF), among other "world" organizations, has begun calling for a big increase in the top tax rate (back to 70% in the US) and even a "one-time" tax on assets held by the wealthy. Here's one commentary from the Wall Street Journal, on the tax-the-rich initiatives now gaining momentum here, there, and everywhere.
The Politicians. In an attempt to remain in power and to protect their own entitlements, the politicians can be expected to strike an increasingly populist tone—it's always been that way. Earlier this week President Obama once again played the entitlement card… this from the Guardian:
"Barack Obama warned that a 'relentless, decades-long trend' of growing inequality and social immobility posed a fundamental threat to the American dream on Wednesday, throwing his support behind a grassroots movement to address chronically low wages across the US.
"Attempting to regain the political momentum after a calamitous two months in which his healthcare reforms were plagued by website failures, the president said reversing the growing gap between rich and poor was 'the defining challenge of our time'."
In time, pushed by the entitled masses to do more than just talk, expect the politicians to take off the gloves and begin instituting every manner of harebrained scheme to milk any group of taxpayers lacking the numbers required to provide political cover come election time.
The Yuppies. Given that this demographic group is now heading toward the pasture and have been scared stiff by the slow-motion collapse under way, they're going to do everything in their power to ensure their entitlements stay intact. Which is to say they won't show up to vote for any party that pledges, upon being elected, to cut said entitlements. Ironically, they will be voting for the very politicians who, as a core reelection strategy, will demonize them and seek to clean them out of a good percentage of whatever net worth remains to them.
Old People. Old people vote in droves, and so they count to the politicians… at least for the time being, which means there will be no serious attempt to reduce the massive entitlements they now enjoy.
The Poor. Given the proven political efficacy of populist appeals, the odds of any (successful) politician thumping the podium in favor of cutting welfare, reducing food stamps or school lunch programs, etc., is approximately zilch. Far more likely is that the politicians will try to shove the financial implications of additional entitlements onto the backs of businesses. Which, in turn, will result in those businesses buying robots and deploying software to reduce their workforce.
Meanwhile, encouraged by the politicians, the nation's poor will be emboldened in demanding more… or else. For the record, the official poverty level in the United States, which is defined as being the amount of money needed to buy a "minimally adequate" basket of goods and services according to the living standards of the 1960s, is currently set at $11,720 annually for a single person, $14,937 for a two-person family, and $23,492 for a family of four.
The latest data show that about 46 million US citizens fall below those levels, the largest number since records first began being kept over 50 years ago. Tellingly, that's a 36% increase since 2000.
So, who makes up the "poor" in the United States? According to a report by the Congressional Research Service, it breaks down as follows…
"The incidence of poverty among African Americans and Hispanics exceeds that of whites by several times. In 2012, 27.2% of blacks (10.9 million) and 25.6% of Hispanics (13.6 million) had incomes below poverty, compared to 9.7% of non-Hispanic whites (18.9 million) and 11.7% of Asians (1.9 million).
"Although blacks represent only 12.9% of the total population, they make up 23.5% of the poor population; Hispanics, who represent 17.1% of the population, account for 29.3% of the poor. Poverty rates for all groups mentioned above were statistically unchanged from 2011 to 2012, as were the total numbers estimated as poor."
Bringing us to… Minorities. For obvious reasons, the minority population now reflexively votes against the party of Lincoln. In the last presidential contest, a whopping 83% of minority voters cast their votes for the Democrats. This sort of political base is to be catered to, and so it will be. No cuts in entitlements here.
Sexual Orientation. Likewise, those who favor being defined by their sexual preference prefer the Democrats by approximately a 3-to-1 margin. Given the Democrats are fully on board with populist, progressive legislation, expect no demands from this subset for reduced entitlements.
Soldiers. Cut military benefits? Weaken the military's ability to respond? You must be joking! No one on either side of the political aisle would be stupid enough to advocate either. In time, I suspect the military budget will come under pressure—but only until someone in the military-industrial complex finds an excuse for a new war or, failing that, conjures up an imminent threat that must be countered.
In other words, there is no popular or political will to do anything other than maintain the status quo in this Age of Entitlement. Given that stark truth, all we as individuals can do at this point is sit back and watch the slow-motion train wreck unfold—which, for the record, I'll be doing from afar.
While you will have to make your own decisions about how to best protect yourself, given that my personal view is that this will all end in a spectacular collapse of the fiat currencies, I plan on continuing to allocate a reasonable percentage of the family portfolio to things tangible… precious metals, energy, operating businesses, unleveraged real estate, and investments in the securities of companies with business models that profit from rising prices of tangibles.
That many of these assets are currently on sale is only to the better.
If you, too, are interested in paying pennies today for dollars tomorrow, check out BIG GOLD, our least expensive yet highly valuable advisory service dedicated to identifying the most undervalued large precious metals companies. As these companies have sold off sharply over the last little while, they now offer an exceptional opportunity to profit. Details on your fully guaranteed subscription to BIG GOLD can be found by clicking here now.
Quotes from Garrett
A fellow owner here in La Estancia de Cafayate, Jack D., recently sent me info on a very interesting character from history, Garet Garrett, the long-serving economics writer for the Saturday Evening Post and author of numerous books on topics related to economics.
Once I started learning more about Garrett, I was surprised I had never heard about him before, or more to the point, that his name had been allowed to fade from present consciousness.
While you can and should read more about him in Jeffrey Tucker's excellent piece on the Mises.org site, here are a couple of excerpts from Tucker's article, as well as a small sampling of quotes from Garrett himself.
"This [his current anonymity] is a tragedy because both his nonfiction and his novels display a most rare talent and offer more than a mere condemnation of the New Deal government. He not only wrote in opposition to war; his entire oeuvre offers a sparkling vision of peace under free markets as well. Whereas many intellectuals on the Right and Left regard the peaceful, bourgeois society as something of a bore—with the middle class amassing wealth and spending it on fripperies—Garrett saw peace and freedom as the essential precondition for the real drama of human life that revolves around creation, association, love, courage, and the full range of human vices and virtues that transform society in spectacular ways."
"Garrett was not a trained economist but his knowledge of economic forces was so profound that he wrote the first full and widely circulated explanation, in line with the Austrian School tradition, of the 1929 stock market crash. The Bubble that Broke the World (1932) placed the blame on an overextension of credit made possible by the Federal Reserve; this created, said Garrett, a false prosperity that led to a correction. This book alone is proof that his journalism continued through the Depression and war, always with a decidedly and even radically libertarian cast."
"The New Deal's enmity for that system of free and competitive private enterprise which we call capitalism was fundamental."
"The spectacle of a great, solvent government paying a fictitious price for gold it did not want and did not need and doing it on purpose to debase the value of its own paper currency was one to astonish the world."
"There was endless controversy as to whether the acts of the New Deal did actually move recovery or retard it, and nothing final could ever come of that bitter debate because it is forever impossible to prove what might have happened in place of what did."
"To the revolutionary [read 'Roosevelt's brand of socialism'] mind the American vista must have been almost as incredible as Genghis Khan's first view of China—so rich, so soft, so unaware."
"If the great Government of the United States were a private corporation no bank would take its name on a piece of paper, because it has cynically repudiated the words engraved upon its bonds."
In any event, I thought you'd be as interested in meeting Garet Garrett as I was, so, thanks to Jack D., consider yourself introduced.
On the topic of brainy quotes, Doug Casey's newest book, Right on the Money, will be released on December 12. As with his Totally Incorrect, it contains a wide-ranging collection of commentaries that are not only highly entertaining, but offer extremely useful insights into the world we live in. For more information and to preorder your copy, click here now—you’ll be happy you did.
Skateboarders vs. Keystone Kops
What happens when hundreds of "illegal" skateboarders hold their annual run on the streets of Manhattan, and the forewarned police do their (lame) best to stop them? This Bennie Hill-style video of what follows is priceless.
Receptionist: Hello, Welcome to Obama Flowers. My name is Trina. How can I help you?
Customer: Hello, I received an email from Professional Flowers stating that my flower order has been canceled and I should go to your exchange to reorder it. I tried your website, but it seems like it is not working. So I am calling the 800 number.
Receptionist: Yes, I am sorry about the website. It should be fixed by the end of November. But I can help you.
Customer: Thanks. I ordered a "Spring Bouquet" for our anniversary, and wanted it delivered to my wife.
Receptionist, interrupting: Sir, "Spring Bouquets" do not meet our minimum standards, I will be happy to provide you with red roses.
Customer: But I have always ordered "Spring Bouquets"— done it for years, my wife likes them.
Receptionist: Roses are better, sir; I am sure your wife will love them.
Customer: Well, how much are they?
Receptionist: It depends, sir. Do you want our Bronze, Silver, Gold, or Platinum package?
Customer: What's the difference?
Receptionist: 6, 12, 18, or 24 red roses.
Customer: The Silver package may be okay. How much is it?
Receptionist: It depends, sir. What is your monthly income?
Customer: What does that have to do with anything?
Receptionist: I need that to determine your government flower subsidy, then I can determine how much your out-of-pocket cost will be. But if your income is below our minimums for a subsidy, then I can refer you to our Flower Aid department.
Customer: Flower Aid?
Receptionist: Yes, flowers are a right. Everyone has a right to flowers. So, if you can't afford them, then the government will supply them free of charge.
Customer: Who said they were a right?
Receptionist: Congress passed it, the president signed it, and the Supreme Court found it constitutional.
Customer: Whoa… I don't remember seeing anything in the Constitution regarding flowers as a right.
Receptionist: It is not really a right in the Constitution, but Obama Flowers is constitutional because the Supreme Court ruled it a "tax." Taxes are constitutional. But we feel it is a right.
Customer: I don't believe this…
Receptionist: It's the law of the land, sir. Now, we anticipated most people would go for the Silver package, so what is your monthly income, sir?
Customer: Forget it, I think I will forgo the flowers this year.
Receptionist: In that case, sir, I will still need your monthly income.
Receptionist: To determine what your "non-participation" cost would be.
Customer: WHAT? You can't charge me for NOT buying flowers!
Receptionist: It's the law of the land, sir, approved by the Supreme Court. It's $9.50 or 1% of your monthly income—
Customer: This is ridiculous. I'll pay the $9.50.
Receptionist: Sir, it is the $9.50 or 1% of your monthly income, whichever is greater.
Customer: ARE YOU KIDDING ME? What a ripoff!!
Receptionist: Actually, sir, it is a good deal. Next year it will be 2%.
Customer: Look, I'm going to call my congressman to find out what's going on here. This is ridiculous. I'm not going to pay it.
Receptionist: Sorry to hear that, sir. That's why I had the NSA track this call and obtain the make and model of the cell phone you are using.
Customer: Why does the NSA need to know what kind of CELL PHONE I AM USING?
Receptionist: So they get your GPS coordinates, sir.
(Doorbell rings, followed immediately by a loud knock on the door)
Receptionist: That would be the IRS, sir. Thanks for calling Obama Flowers, have a nice day... and God bless America.
More Climate Craziness
This article from Wattsupwiththat.com is not technically funny… but it is laughable. It appears that the latest dictates coming from on high—i.e., the United Nations—put the US and other developed countries on the hook for trillions of dollars to be distributed to developing nations (read "Swiss bank accounts of Third World politicians") as compensation for any further storm damage they may suffer.
Actually, the last laugh will be on the developing-world politicians when they finally figure out the developed nations are flat broke and won't be able to come up with the money by any other way than running a big counterfeiting operation.
And That's It for This Week
My apologies for going on so long (again!) this week. When I sit down to write, the time slips away and next thing I know, I'm looking back on 15 pages of meandering musings. I do appreciate that you took the time to read to this point and sincerely hope you found the journey worth taking. And with that, I am going to head to the exit by thanking you once more for being a subscriber. Have a great weekend!
- Thu, 05 Dec 2013 18:10:00 +0000: Does the FDA Think You’re Stupid? - Casey Research - Research & Analysis
Does the FDA think you're too stupid to have access to your own genetic information?
It sure seems so.
The Food and Drug Administration, which bills itself as "the oldest comprehensive consumer protection agency in the US federal government," probably stirs up more emotion among citizens than any other federal agency (save perhaps for the IRS). For good reason. The range of activities into which the FDA is "mandated" to poke its supervisory fingers is vast and includes most prominently the regulation of most types of foods, dietary supplements, medical devices, human and veterinary drugs, vaccines and other biological products, and cosmetics.
And this time it's really gone too far.
For those of you who are not familiar with 23andMe, the company provides a "DNA Spit Kit" and "Personal Genome Service" (PGS) that supposedly reports on 240+ health conditions and traits and helps clients track their ancestral lineage. Basically, you send a saliva sample in via the "Spit Kit," and the company analyzes the sample using a DNA sequencing machine. It doesn't give you a full readout of your genome, but tests for a custom panel of what are called single nucleotide polymorphisms in order to determine, for instance, if you're a carrier for certain disease-linked mutations like cystic fibrosis or sickle cell anemia. The panel also tests for the three most common BRCA1 and 2 mutations that are associated with breast cancer, among many other mutations associated with other diseases.
So what we're talking about here with 23andMe is information, not a medical device. It's your personal genetic information. And the FDA wants to put the kibosh on one of the only companies providing this service inexpensively—you get your Spit Kit and readout for just $99—to consumers. This is really a first amendment issue, and the FDA should not be in the business of regulating freedom of speech and information. But considering what the FDA thinks of your intelligence, I'm not surprised they're trying to reach this far.
Consider some of the language from the FDA's warning letter to 23andMe.
"For instance, if the BRCA-related risk assessment for breast or ovarian cancer reports a false positive, it could lead a patient to undergo prophylactic surgery, chemoprevention, intensive screening, or other morbidity-inducing actions, while a false negative could result in a failure to recognize an actual risk that may exist."
Really? You think that if a woman receives news from a $99 test that she may be at a higher risk for breast cancer due to a genetic mutation that she's going to run out and somehow acquire chemo drugs and start dosing herself, or that she's going to go to some back-alley clinic to have her breasts lopped off? Not to be crude or make light of a very serious situation and condition, but the FDA's implication is insulting, to say the least.
What would actually happen in the real world is that she'd go to a doctor to get herself checked out, perhaps sooner rather than later, which isn't a bad thing even if the 23andMe test showed a false positive. Now, if the test showed a positive for the mutation and she is in fact positive—which would have to be confirmed by a separate test from a doctor anyway before a mastectomy—it is her right to undergo such surgery whether or not it is determined to be "medically necessary." This is precisely what Angelina Jolie recently did.
The false negative argument is maybe a little more plausible, but despite what the FDA might believe, people who are proactive enough about their genetic makeup in the first place to seek out a service like the PGS from 23andMe are smart. They know that no test is foolproof or 100% accurate. People receive false negative tests from federally regulated labs and physicians all the time. It's unfortunate, but that's the way these things work. You don't see anybody making a stink that these tests shouldn't be run just because there's a small chance of delivering a patient a false negative result.
In response to the FDA's warning letter, 23andMe has stopped all TV, radio, and online advertising for its PGS, although the service is still being sold on the website. The situation is still unfolding, so whether or not the FDA decides that the company is now in compliance because it's no longer "marketing" the PGS remains to be seen. It could determine that just having the website active is a form of "marketing," which could be the nail in the coffin for the company. We'll have to see. According to the FDA, 23andMe had 15 working days (starting November 22) to notify it of the specific actions the company has taken to address all of the issues raised in the letter.
As expected, an additional consequence of the FDA's warning letter is a class action lawsuit that was filed just five days after the letter was sent. The lawsuit alleges that the test results are "meaningless," and that 23andMe uses false and misleading advertising to promote its services to US consumers. The lawsuit seeks at least $5 million under various California state laws and estimates "tens or hundreds of thousands" of US customers are entitled to damages from the company.
Look, I get that many of you probably think the FDA had every right to do what it did. And I'll admit that its actions probably were legally justified, since 23andMe's advertising campaign did seem to market the PGS "for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment, or prevention of disease", which falls under the FDA's purview.
I also understand why detractors of consumer genomics companies think the FDA should shut down 23andMe and all its peers/competitors—because people engaging the services of these companies don't get the full picture, and what's going on is much more complex. Only part of a person's DNA is tested, and how to properly interpret the results is still uncertain, since many factors other than a mutation in isolation contribute to disease.
But when do we ever get the full picture? Even a readout of our entire genome is only a small part of the story. A key takeaway from what's known as the ENCODE Project is that much of what was previously thought of as "junk DNA" actually performs regulatory functions—which can be thought of as regions that act like switches attached to a particular gene which determine whether or not they'll be expressed. There are millions of such regions throughout the genome, and they're linked to each other (and to the protein-coding genes) in an extremely complicated hierarchical network. What's more, the linear ordering of the genome provides a further source of confusion: the three-dimensional folding of the chromosomes inside the nucleus allows promoter regions to maintain a close connection to genes that apparently lie far away on the linear sequence. This explains why so much biochemical activity can be found even deep in the deserts of the alleged "junk DNA." Many of these promoter regions manifest themselves in the cell as "functional RNA" molecules—types of RNA that are an end product in themselves, rather than merely an intermediate step on the way to becoming a protein, and which play a key role in switching genes on and off.
In truth, we never get the full story, no matter whom we turn to, and there's nothing wrong with bits and pieces of information to help us make decisions along the way (or just to satisfy our curious nature). And that's really the whole point here. I don't really care if what the FDA did was technically legal or that some people think it makes sense in order to keep others from harming themselves in some way. What matters is that this ultimately boils down to information—personal genetic information. And whether 23andMe does a good job of providing that or not, it's our right to seek out such a service and use it if we so desire.
- Wed, 04 Dec 2013 13:53:00 +0000: Obamacare’s “Hippocrites” - Casey Research - Research & Analysis
I still remember my doctor making $5 house calls in Abilene, Kansas. Now my healthcare policy has been deemed "substandard" by government mandate. In a world where technology accelerates, health care degenerates. The 2,700-page Affordable Care Act is to be the crowning blow.
You may think you know all there is to know about Obamacare, but wait until you read Dr. Elizabeth Lee Vliet's piece below. You may not have heard about Ezekiel Emanuel's "The Complete Lives System." I hadn't. It's the intellectual underpinning for the Affordable Care Act, and it's frightening.
Obamacare was to fix the ills of America's free-market healthcare system. However, the US healthcare system has been anything but laissez faire since WWII, when patients lost the power of the purse with their doctors. Employers, needing to attract wartime employees and skirt wage controls, offered insurance instead.
President Harry Truman told Congress on November 19, 1945, just seven months into his presidency, "The right to adequate medical care and the opportunity to achieve and enjoy good health" was a part of his proposed Economic Bill of Rights. Another was "the right to adequate protection from the economic fears of … sickness."
Even the American Medical Association (AMA) called Truman's bill "socialized medicine" and said those in the Truman White House were "followers of the Moscow party line."
Truman backed off, but in 1965 President Lyndon B. Johnson signed Medicare into law at the Harry S. Truman Library and Museum and reminded onlookers that Medicare "all started really with the man from Independence."
Now, Uncle Sam provides health care for more than three-quarters of those over 65, whether they realize it or not. In a famous town-hall exchange with Republican Congressman Bob Inglis, one of his constituents in South Carolina shouted, "Keep your government hands off my Medicare!" The man couldn't be convinced that Medicare was already a government program.
Nearly a third of all Americans depend upon the government for their health care. They already bear the brunt of an overregulated system that generates too much demand and too little supply. As long ago as 1922, the great Austrian economist Ludwig von Mises, in his book Socialism, wrote about a German medical system controlled by government that destroyed the price system, eradicating economic rationality and creating economic chaos.
Medical socialism is particularly devastating to people, because it affects their capacity to stay healthy and alive. By robbing individuals of their rights to exchange and choose, Mises wrote, state-run medical systems are comparable to those run by the army or by prisons, which are not centers of health but of disease and disaster.
In her very provocative piece, Dr. Vliet explains that Obamacare runs smack into the face of a physician's Hippocratic Oath of doing no harm and benefiting the sick. We know the president lied when he said, "If you like your coverage, you can keep it." Even more outrageous is what he didn't say.
That said, if you like outspoken people like Dr. Vliet, I should tell you that Doug Casey is about to release his second book after the wildly popular Totally Incorrect. This one is called Right on the Money and focuses mostly on topics such as the economy, investment strategies, speculation, and how to be a contrarian… as usual in Doug's inimitable, irreverent style.
Read it yourself and/or give it as a holiday gift to those who appreciate a candid and humorous read devoid of political correctness. You can preorder it here.
And without further ado, here is Dr. Vliet's article. Be warned—it's not for the faint of heart.
Contributing Editor, Casey Research
Obamacare: Diametrically Opposed to the Hippocratic OathElizabeth Lee Vliet, M.D.
Over 2,500 years ago, Hippocrates—the Greek physician and father of modern medicine—outlined the principles that have guided medical practice ever since. We call it the Oath of Hippocrates today.
The core tenet of the Oath of Hippocrates is that a physician has a sacred duty to serve the needs of the individual patient to the best of his or her ability. Here's a snapshot of what the original Greek version says:
I swear by Apollo Physician and Asclepius and Hygieia and Panacea and all the gods and goddesses, making them my witnesses, that I will fulfill according to my ability and judgment this oath and this covenant:
I will apply measures for the benefit of the sick according to my ability and judgment;
I will keep them from harm and injustice.
I will neither give a deadly drug to anybody who asked for it, nor will I make a suggestion to this effect.
Similarly I will not give to a woman an abortive remedy. In purity and holiness I will guard my life and my art.
Whatever houses I may visit, I will come for the benefit of the sick, remaining free of all intentional injustice, of all mischief and in particular of relations with both female and male persons, be they free or slaves.
What I may see or hear in the course of treatment or even outside of the treatment in regard to the life of men, which on no account one must spread abroad, I will keep to myself, holding such things shameful to be spoken about.
If I fulfill this oath and do not violate it, may it be granted to me to enjoy life and art, being honored with fame among all men for all time to come; if I transgress it and swear falsely, may the opposite of all this be my lot.
That's pretty clear: it is a doctor's duty to do what's best for his or her patient, no matter what. This one-page oath has guided Western doctors for over two millennia.
Obamacare, clocking it at 2,700 pages (plus 20,000 pages of regulations, which they're not done writing yet) is based on the exact opposite idea: that a physician should serve the collective, or greater societal good, even at the expense of an individual patient.
I've written before about how Obamacare is based on "The Complete Lives System" by Ezekiel Emanuel, Rahm Emanuel's brother, and an early senior White House health policy adviser to Obama. Most Americans have never read these articles, because they were published mainly in British medical journals. You can read one for yourself here.
"The Complete Lives System" makes crystal clear that physicians must not focus on the individual patient. Instead, medical care should be allocated based on the patient's usefulness to the "collective good." If you're too old, or too young, or your ailment is too complicated, society is better off letting you die, rather than paying a doctor to heal you.
One tenet of the Complete Lives system is that medical care for people under age 15 and over age 45 should be attenuated. "Attenuate" means to ration. Emanuel believes that the very young and the elderly are less valuable to society than those in the middle of the age curve. He published this chart called the "reaper curve," which illustrates which age groups he believes should receive the most and best medical care.
And who will do that allocating and "attenuating" of your medical care? Why, bureaucrats, of course. Instead of doctors asking, "Is this in the best interest of my patient?" bureaucrats will consult their spreadsheets and ask, "Will the government get a decent return on its cost for this patient's medical care, or could that money be better used for someone else who will better serve the needs of society?" Sorry if you happen to die in the process.
Unfortunately, it seems that the Oath of Hippocrates is headed for a similar fate as the Constitution and Bill of Rights. It's becoming an anachronism.
Physician responsibility for decision making is the core tenet of Western medicine. Obamacare seeks to undermine that by putting the federal government in charge of medical decisions.
"We Should Never Again Let Doctors Work for the Government"
History shows the disastrous outcomes when doctors work for governments instead of patients. All totalitarian regimes—Lenin, Hitler, and Castro included—have used control of medical services to control their populations and devalue human life.
I realize that invoking those names can elicit negative knee-jerk reactions; I'm not trying to minimize their atrocious reigns by comparing them to Obamacare, nor am I saying that our medical system is headed the way of the Third Reich. But these murderous regimes taught us lessons about the relationship between doctors and government many decades ago. Those lessons seem to be slipping from our collective memory.
For example, when analyzing the grotesque outcome of Nazi medicine, we only see the end results of the doctors' atrocities. We hear of Nazi doctors who were hanged for experimenting on and killing patients.
But you don't hear about the long, slow process it took to get to that point. Nazi leaders didn't just command doctors to start killing people one day. They started by removing focus on the individual patient and switching to a "greater good" basis. They installed panels of "experts"—including doctors, lawyers, and psychiatrists—to decide who lived and who died, based on a cost-benefit analysis of the patient's value to society. This system stymied the many good doctors who wanted to do right by their patients. They had two choices: obey the government or join the victims.
Many prominent physicians were tried at Nuremberg and executed. Following the Nuremberg Doctors' Trial, Leo Alexander summed up the combined British, French, and American prosecutors' opinions that most of the German doctors were not inherently evil. The problem was that they worked for the government.
The Allied prosecutors concluded: "We should never again let doctors work for the government."
Government Doctors Come to the US
Government doctors are back in style. As is the "Progressive" view that some individuals must give up their medical services to others who are more deserving. The "cookie cutter" protocol of rationing based on age, condition, and cost is dangerous and costs lives. But that's where we're headed.
If there ever was a time and reason for internationalizing your life and assets, this is it. There are steps you can take: get some money in a health savings account overseas. Get an international health insurance policy.
Someday, your life could depend on having access to that money free of government restrictions. Prepare for that day.
Your health is your greatest wealth. To protect it to the best of your ability, explore health care options outside of the US.
Dr. Vliet writes as an independent practicing physician with medical practices in Tucson and Dallas focused on issues of endocrine aging in men and women from puberty to late life. Dr. Vliet is also the CEO of International Health Strategies, Ltd., a medical consulting company that assists patients in finding appropriate high-quality, affordable medical care overseas to maintain patients' medical privacy and medical freedom to choose individualized treatment options free of government intrusion.
Dr. Vliet is the author of six consumer health books and the 2007 Voice of Women Honoree by the Arizona Foundation for Women for her pioneering work on the overlooked hormone connections in women's health. She has appeared on nationally syndicated radio and TV shows discussing the healthcare law as well as a variety of health topics for women and men. Dr. Vliet was one of the speakers at the recent 2013 Casey Research Summit (click here to purchase the complete Summit audio set).
- Tue, 03 Dec 2013 18:08:00 +0000: The Energy Picture for 2014 - Casey Research - Research & Analysis
The Casey Energy Team hasn't been so excited in quite some time.
Because we're in the process of providing our outlook for 2014 in the next issue of the Casey Energy Report… and it's looking very good indeed.
Granted, 2013 was a good year for our portfolio—we were able to beat all our benchmarks while at the same time taking our initial investments off the table and letting the rest of the shares ride for risk-free gains.
But 2014 promises to be even better, as we're seeing all the stars align for our "big picture" themes… and the companies in our portfolio that are poised to profit.
The European Energy Renaissance is alive and well. Even though Russia currently has a stranglehold on Europe's supply of oil and gas, European nations are not going to sit idly by as Vladimir Putin uses this control to gain more and more economic and political leverage.
Remember 2009, when Russia shut off Europe's gas for 13 days in the dead of winter? Most of the EU countries fervently want to avoid a repeat of that story.
But there aren't too many ways to circumvent Russia. After all, importing oil from the Middle East could be just as risky. The best method, then, is to encourage domestic production at any cost; for companies operating in Europe, this will mean lower taxes and more relaxed regulations.
For these companies, the harder Putin squeezes, the better their prospects.
The "Next Bakken"—Still an Issue in 2014
2014 could very well be the Year of Putin, which means the Year of the European Energy Renaissance. And the Casey Energy Report is already well-positioned to profit from this ongoing trend of "Putinization" with one of the most exciting companies that we've seen in years… a small oil explorer sitting on a 2-million-acre concession in a proven oil-rich part of Central Europe that we call the "Next Bakken."
While we were the first to talk about this company, other analysts recently started to get wind of it and hype it up, leading to a quick doubling in the share price. That development prompted us to temporarily close down the Casey Energy Report to new subscribers while news of the company's first drill results was still pending.
That news has recently been released, and while the stock price dropped on investors' overhyped expectations, overall it has reacted well.
(You should know, by the way, that our "Next Bakken" play is not a shot in the dark. More than 90 million barrels of oil have been produced from this very basin in the past. An estimated 1+ billion barrels of oil reserves are still left in the ground… and with modern technology, such as horizontal drilling, the company is counting on unlocking these reserves.)
As we are reopening the Casey Energy Report, subscribers still have the chance to get in—at a good price—ahead of the company's most exciting developments to date, coming in 2014. And once our "Next Bakken" pick establishes itself as the next big thing in the oil patch, there is no telling how high the shares could go.
The New Global Battle for Energy Technology
A different theme in 2014 that we will feature prominently in our Casey Energy Dividends (included in all Casey Energy Report subscriptions) is the new global battle for energy technology—the technology to produce oil from difficult-to-access areas.
While the world is by no means running out of oil, it's a fact that the cheap, easy, light crude has been tapped out—that game is done.
The new game is called "progress." And the technology to produce oil from the difficult shale formations or from deposits miles below the ocean's surface—a technology in which the US happens to excel ahead of most other countries on the globe—is the most valuable commodity in the world right now.
This intellectual property is more valuable than anything Google, Apple, Microsoft, and Samsung combined have ever come up with.
Countries that have it will be able to keep feeding their industries with energy—those that don't will be forced to kowtow to those that do.
Companies that have it will be able to reward their shareholders with dividends and capital gains—those that fail to adapt will go the way of Kodak, Polaroid, and Blockbuster.
In this upcoming forecast issue of the Casey Energy Report, you'll also find our predictions—based on thorough analysis—on where the most important energy commodities are going in 2014.
- Will oil be up or down in the coming year?
- Will LNG change America's natural gas outlook?
- Is this finally the year for uranium?
- Are there signs of life in the coal sector… or is it dead on arrival?
All these questions (and more) will be answered in the next issue.
The Casey Energy Report, now reopened, is your best resource for making the correct decisions for your energy portfolio in 2014 and beyond. Our comprehensive research and objective, no-nonsense approach will steer you away from the minefields and into profitability.
So as 2013 comes to an end, do yourself a favor and sign up for a risk-free, 3-month trial of the Casey Energy Report and find out what 2014 has in store for energy investors. Take 3 full months to make sure this newsletter is for you—or your money back. Click here to get started.
Additional Links and Reads
Turkey isn't afraid to tread on some toes if it means securing oil from a source other than Russia. It definitely helps that major international oil companies chose to acknowledge the Kurdistan region (KRG) and its government as the governing body in the area. This gives KRG a lot of authority and handcuffs Baghdad, as the government still need majors for its capital. We expect Kurdistan to export its oil, and the pipeline to be one of the most heavily guarded lines in the world.
Methane hydrate deposit confirmed off Niigata (Japan Times)
Methane hydrate is a story we have followed for years, but it's absolutely too early to even begin thinking of investing in it. While the Japanese have already successfully extracted natural gas from methane hydrate, there are still too many risks that must be addressed before it will become feasible. The biggest risk drilling for oceanic deposits is that it destabilizes sea beds, which can cause earthquakes and tsunamis.
The environmentalists in Romania are on a roll. First it was Gabriel Resources' Roşia Montană mine that was shelved; now it's Romanian shale gas put on the back burner. We doubt this issue will be resolved in the near future, and it appears that the country will only be open to conventional drilling. This is definitely a norm throughout Europe, and conventional plays are hard to come by. We've covered this trend extensively and recommended key players with access to prolific conventional acreage. We know it's just the beginning of the cycle.
- Mon, 02 Dec 2013 16:52:00 +0000: Time for Goldbugs to Admit Defeat? - Casey Research - Research & Analysis
We've focused a great deal on gold over the years, and we've taken a lot of heat in the last two, during which the price of gold has dropped by a third. Are we fanatics refusing to face reality, or are we doing the right thing, staying the course through thick and thin?
BIG GOLD's Jeff Clark has a well-reasoned answer for us below. I hope all our readers take his message to heart.
Senior Metals Investment Strategist
Rock & Stock StatsLastOne Month AgoOne Year Ago Gold 1,252.10 1,345.50 1,729.50 Silver 20.03 22.49 34.35 Copper 3.19 3.28 3.59 Oil 92.72 98.20 88.07 Gold Producers (GDX) 22.28 25.78 48.04 Gold Junior Stocks (GDXJ) 32.50 39.26 87.60 Silver Stocks (SIL) 11.65 13.32 23.03 TSX (Toronto Stock Exchange) 13.395.40 13,440.61 12,202.85 TSX Venture 934.89 968.44 1,218.38
Time for Goldbugs to Admit Defeat?Jeff Clark, Senior Precious Metals Analyst
After a 12-year run, it looks like gold's wave has truly crested, and many bears are arguing that it's all downhill from here. A quick glance at a long-term gold price chart can certainly seem to confirm this impression.
Gold's price has fallen by more than a third since its 2011 high. The downturn exceeds the 2008 waterfall selloff. Many technical analysts are saying that the "damage" on the charts is too great for gold to recover. The rout is so bad, even hardened goldbugs have grown quiet lately.
Is it time for gold investors to admit defeat?
Well, if it were true that "damage" on a chart such as we've seen signals the end of a bull market, perhaps it might be. But is it so? Or is this just a correction?
One of the greatest bull markets in modern times was the Nasdaq in the 1990s. The Nasdaq composite rose a whopping 1,150% over the span of a decade. But did you know it had a major correction in the middle of that run? The same is true of oil's big surge in the mid-2000s. Consider this chart of the big corrections oil and the Nasdaq experienced:
After seeing prices crash in both the Nasdaq and oil, most investors assumed those bull markets were over—but they weren't. Here's the subsequent rise in each after prices bottomed:
The Nasdaq and oil did recover from their large corrections—despite all the technical "damage" many pointed to as proof that those bull markets were over. Investors who sold their positions during the downdrafts missed out on some fantastic profits.
Given that all the reasons gold rose from 2001 to 2011 are still in force, I am convinced gold's current correction is the setup for a second big surge—and, ultimately, a true gold mania of historic proportions.
Just because gold doesn't seem to be reacting to Fed money-printing at the moment doesn't mean it won't. Sooner or later, reality trumps fantasy. Reason says that you can't quintuple your balance sheet in five years and expect no repercussions. The Fed keeps hinting it will taper its money printing, but it still has not. We've had QE1, QE2, Operation Twist, and now QE3… none of them has worked, and the new Fed chair wants to print even more money.
It's pure fantasy to believe there will be no consequences to these actions—and the reality is that whatever else happens, gold will react positively.
Should gold investors admit defeat? I say it's reckless central bankers who should declare defeat.
A gold recovery is inevitable. Prepare accordingly. Try BIG GOLD risk-free for 3 months to access our GLD put strategy, frequent bullion discounts, and the producers that will respond the strongest once the recovery takes hold. 100% satisfaction, or your money back—click here to get started.
Gold and Silver HEADLINES
The latest figures show that net Chinese gold imports through Hong Kong accelerated in October to 131.2 tonnes (4.2 million ounces), making it the seventh month this year China has imported over 100 tonnes (3.2 million ounces) of gold and the sixth in a row. Total YTD imports now stand at 967 tonnes (31.0 million ounces).
Though there are no data for November available yet, it's certain that Chinese imports have reached the 1,000-tonne (32.1 million ounces) figure, forecasted by both the WGC and GFMS earlier this year. It's now estimated imports through Hong Kong this year will be more like 1,200 tonnes (38.5 million ounces).
Hong Kong is not the only route for gold imports, as Shanghai is another big source. Some analysts estimate that gold imports from all sources, combined with domestic gold production of 420-430 tonnes (13.5-13.8 million ounces), will be in the range of 2,400-2,500 tonnes (77.1-80.3 million ounces). This is over 80% of the latest estimates of world new gold output this year of 2,900 tonnes (93.2 million ounces).
Investor Confidence Returning to the Mining Industry (Mining.com)
One of the most trusted indicators of the global exploration sector's overall health—SNL Metals Economics Group's Pipeline Activity Index (PAI)—sits at a historical low, where it's been for the past six months.
The number of significant drill results has remained flat for much of 2013, and only a limited number of sufficiently capitalized junior companies continue advancing their top projects. SNL Metals Economics Group anticipates the level of drilling activity in 2014 could be the lowest in years, considering the large numbers of juniors that will begin next year with no funding and little available risk capital.
The good news is that there is sound evidence to assume the current below-average levels likely mean global drilling activities and resource announcements have hit rock bottom. The bad news is that it's hard to predict when it will rebound.
Australia's Mining Boom Is Over (Mining.com)
Investment in Australia's mining industry has declined in the last six months (through October), suggest new figures from the Bureau of Resources and Energy Economics (BREE). Compared with the prior six months, the number of "committed stage" projects (i.e., projects that have completed all permitting procedures and are either under construction or about to begin construction) dropped by 10 and the value of these projects has fallen by 10% to a combined value of A$240 billion.
Researchers name two key drivers behind the decline. During the period, there was a record for the value of projects moving into the "completion" phase of about $30 billion. And the country recorded the lowest value of new projects being sanctioned in the past decade: $1.7 billion.
Over the past decade, Australia's mining sector has enjoyed a massive influx of investment that's made the country host to several "mega mining" projects, those valued in excess of $5 billion. But now the country is in transition from the investment phase to the production phase.
"The economic benefits of the production phase may not be as large as the investment phase per year, but they are expected to last for considerably longer." However, with current commodity prices, "the industry is 'unlikely' to see a rebound to the very high price levels observed during the peak of the latest cycle."
So much for Australia's great mining tax fiasco.
This Week in International Speculator and BIG GOLD—Key Updates for Subscribers
- One of our junior explorers has just raised more funds, without excessive shareholder dilution. Given how much gold this company has delivered for the money put into the ground, we're sure it will continue adding value.
- One of our gold producers has built a new mine, not only on budget, but ahead of schedule. Shares are on sale.
- Tomorrow's BIG GOLD has a new stock recommendation, a fund that yields 12% at current prices. Earn some serious cash while waiting for the market to turn.