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When Money Dies - a "Live from the Summit" Report

Stock-Markets / Financial Markets 2011 Oct 03, 2011 - 01:43 PM GMT

By: Casey_Research


Best Financial Markets Analysis ArticleKevin Brekke, Casey Research writes: Where is the US and global economy going? What will happen to the dollar and euro? And how can investors protect themselves from the fallout? All these questions and more were answered at the Casey Research/Sprott, Inc. Summit When Money Dies. Kevin Brekke reports live from the conference…

The vibe had changed noticeably. Waiting patiently to receive my morning fix from the lobby barista, a sense of anticipation charged the air that was absent the previous day. The dress code had undergone a transformation as well, a little more “resort snappy” with the coveted Casey Research lanyard and badge the accessory du jour. And the main presentation room was beginning to fill early with attendees intent on procuring a seat at the front of the room. A subdued murmur of warm conversations among new and old acquaintances presaged another hot day in the desert.

Yes, this was the day… summit kick-off day.

The official starting hour neared, the packed main presentation room fell silent as David Galland, the summit’s host, approached the podium and introduced the first speaker and our company’s namesake, Doug Casey.

The roar of applause cut through the excitement as Doug took the stage. And from the first words, his inimitable style, wit, and unique insight were front and center.

Casey Research subscribers are familiar with Doug’s view of today’s chronic global crisis – we are exiting the eye of the storm and headed for trouble. Doug has long warned of the impending Greater Depression that awaits America and many other world economies. So it was fitting that the title of Doug’s talk was, “The Greater Depression Is Now.”

To ensure that everyone would be on the same page, Doug began with a “definition” of government as the monopoly of force within a certain geographic location. And that government will use this force in a coercive manner to get what it needs. As the Greater Depression grinds on, tax revenues fall and interest costs on the national debt rise, the government will find itself in desperate need of more money – your money, of course.

He pointed out that during depressions the rich usually do okay, and the poor, having little to lose and being on the government gravy train, will get by – they will demand and get more help from government.

It is the middle class that will get killed because they save in dollars. When the dollar is ultimately destroyed, the middle class will be as well.

Doug’s talk was peppered with some typical Casey-esque one-liners that drew roars of laughter. My favorite: When observing that the government shouldn’t be in the letter delivery business and comparing the bankrupt USPS to profitable FedEx, he rhetorically asked: “Why is it you never hear about an employee going FedEx?”

A classic Casey moment.

A hard act to follow, indeed. Yet Bud Conrad gave the audience all the data and analysis to support Doug’s Greater Depression forecast.

In line with the summit’s theme – dying currencies – Bud started with a few slides of ancient Roman coins showing an evolution through several iterations: first minted from gold; then copper was added; then copper was the major alloy; and finally there was no gold content. The money was systematically debased until it became worthless.

This is an early example of inflation.

It is no coincidence, he pointed out, that as money is debased, it undermines the cohesion of a society. The decline of honest money goes hand in hand with the decline of a country. This is what the US is experiencing today – the decline and fall of the American Empire.

With the advent of fractional reserve banking and the use of paper representations of money – today’s ubiquitous paper bills of credit backed by debt – Bud succinctly observed that economies can’t be strong when they are built on debt.

Lots of synchronized head nodding followed.

Bud took us through a history of charts that placed the current US government debt and borrowing situation in context. By several measures, including the debt-to-GDP ratio, the US is in the middle of a pack of countries on the road to experiencing their own Greek moment.

Bud’s data- and analysis-packed presentation covered way more than can be summarized here, and finished with his forecasts for the economy, interest rates, commodity prices, and many other indicators. When referring to the ease with which digital money is created, Bud noted that it (digital money) isn’t worth the paper it isn’t printed on. Funny, yet tragically true.

Next up, Casey Research was honored to introduce Richard Maybury in a rare public appearance. Richard is regarded as one of the top free-market writers in America and, for me, his speech was powerful, emotional, and provocative.

He noted that even if all the calls and predictions at the conference were false, the dollar would still fall because of war.

He began his argument for the inevitability of war by stating that the fundamental problem is political power and its corrupting influence on moral judgment.

The Treaty of Westphalia in 1648 established the ideal of non-intervention in the affairs of states and recognized that a clear and present danger must exist before an act of aggression against another state could be taken. These were laws based on logic and ethics. Reduced to a basic maxim, Richard said, “that means my right to swing my fist ends at the start of your nose.”

Richard pieced together the historical facts into a disturbing picture of today’s reality: a clear and present danger is no longer needed for acts of aggression. The state just needs to think that the other side is up to no good. Logic and ethics are dead, and we are entering a dog-eat-dog era of aggression.

There is far more to his argument that can be covered here. Richard coined the term “Chaostan” (the land of chaos), and warned that a state that disregards laws based on logic and ethics is headed for war. And a byproduct of war is the destruction of the currency.

At the conclusion of Richard’s presentation, he took several poignant audience questions. Personally, I think too listen to just this one-hour segment of the summit is worth the price of our audio set.

Day Two: The Three E’s and Undervalued Stocks

If I were asked to make a list of my ten favorite words in the English language, serendipity would certainly be one of them, and likely near the top. The word derives from the Persian tale The Three Princes of Serendip, where a father sets about to instill the great virtues into his sons. Long story short, the three young men end up gaining this wisdom in a rather unexpected and unforeseen way – and the word “serendipity” later entered the language to describe such adventures.

One of the most rewarding benefits from attending a Casey Summit is the great people you meet. And not just any kind of people that you might run into at, say, your neighbor’s cocktail party or the gym. No, the odds are pretty high that those you meet at the conference will share a similar world view as yourself and are eager to exchange ideas and experiences.

A popular offering at the summit is the Saturday night “dine-around,” where conference attendees sign up to have dinner with a member of the Casey staff, faculty and/or resource company reps. Last night, I had a wonderfully serendipitous dining adventure.

I met a couple who expatriated to Uruguay and are loving every minute of it. A man from Wyoming who lived in London for a time and is actively seeking a place to call his second home outside the US; two men from Texas that have launched a new business venture; a retired doctor who practiced in Canada; and a gentleman from Montreal who lived many years in Arabic countries. Definitely not your typical “cocktail party” chatter that came out of this.

When you meet someone interesting or run into your new friend at a Casey Summit, time can get away from you pretty quickly. And if you should miss a presentation or round table discussion here and there, no need to worry… we have the whole conference captured and available here.

The morning’s first presenter was Chris Martenson, a scientist and writer with unique insights on the future consequences of today’s trends.

His thesis rests on the principle of Three E’s – the Economy, Energy, and the Environment – and how they are interdependent.

The first E, the economy, is currently getting a lot of attention because our modern financial system is dependent on perpetual growth. As all money is loaned into existence, it carries with it a critical obligation to pay back both principal and interest. As long as the economy grows at a 2% rate, servicing the debt isn’t a problem. But it’s a different story if the growth of the economy slows or goes negative.

The problem is that perpetual growth requires energy – the second E – and there are limits to the rates of energy consumption growth and replacement.

The predicament is that the money supply has been increasing exponentially, requiring the economy to grow rapidly to service the debt, and our use of energy is increasing exponentially as well, a situation that cannot be sustained.

Chris makes an important distinction between a “problem” and a “predicament”: problems have solutions; predicaments have outcomes. If we don’t solve the problem of exponential debt-based money growth, then we must suffer through the outcomes.

Unfortunately, the government is focused on seeking solutions to predicaments, and that is a waste of time. Chris warned that investors must understand the possible outcomes and invest accordingly. As a presenter, you know your material was powerful when the next speaker begins by praising you and calls on the audience for another round of applause in your honor. And that is exactly what Rick Rule did after he was introduced. Chris Martenson’s presentation, a must-hear for all investors, is part of the complete summit audio collection.

Rick Rule, a long-time friend of the Casey organization, was so impressed with the content of the conference that he changed his speech topic. Rick is an engaging speaker who touched on many more topics than can be covered here.

However, I can distill his talk into two fundamental points.

First, as investors, we have heard a lot about risks from governments, the clash of cultures, geopolitics, etc. But in terms of your portfolio, the real risk is not taxes, regulations, fraud, or peak oil. It is your own self. In an era of permanent volatility, you must have the courage and liquidity to accept and exploit it.

Second, investors must find commonly held perceptions that are incorrect and bet against them. One of them is that the US dollar is a store of value. That’s wrong, and you can profit from it.

Rick continued with strategies and forecasts for the resource sector in general and the micro-cap sector in particular.

Rick was followed by John Hathaway, senior managing director of Tocqueville Asset Management.

John started out with a great quote: “There are no mulligans in the investment world.” If you are not familiar with this term, it is slang for a free, no-penalty, second chance at something; a “do-over.”

John strongly believes that gold stocks are completely undervalued at this stage and will generate out-sized returns. He expects strong earnings to be reported for the third quarter and for the stocks of the right companies to respond in kind. There will be no mulligan for the investor who misses the chance to get in on the gold mining stock story.

He admits that the mining stocks have not performed on par with the underlying metal and offers four possible reasons for their underperformance:

  1. ETFs have cannibalized gold stocks.
  2. Doubts on the sustainability of the gold price following its recent rapid rise.
  3. Margin pressures to build mines were rising, making it hard to turn a profit.
  4. Investors might be comparing today to 2008. In an environment where the financial sector was imploding, like in 2008, gold stocks did not do the job. Worries are that the same may happen again.

John made a compelling argument that we are entering a period of permanently higher prices for gold, and his presentation was packed with charts and data to support his case. He ended by taking several questions from the audience and had some interesting things to say about storing bullion offshore.

That wraps up only a very small snippet of the action at the Summit. If you’re intrigued and want to learn more, please don’t wait to order the complete audio collection with all the presentations – including Michael Maloney’s keynote speech during the banquet – panel discussions and specific stock recommendations by the faculty..

© 2011 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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