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Gold - The Situation Is Hopeless, But Not Serious

Commodities / Gold and Silver 2013 Oct 11, 2013 - 06:40 PM GMT

By: Casey_Research

Commodities

By Shannara Johnson, Chief Editor

"After listening to some of this morning's speakers, I made sure to program the number of the suicide hotline into my cell phone," real estate expert Andy Miller joked at the beginning of his speech.

And legendary natural-resource investor and chairman of Sprott US Holdings, Rick Rule, quipped, "It's amazing—I actually get to be the positive guy here."


He summarized the main drift of the conference by paraphrasing behavioral psychologist Paul Watzlawick: "The situation is hopeless, but it need not be serious."

Rather than a reason to shy away from buying stocks, he reminded the audience, bear markets like the one we're seeing in gold right now are the greatest opportunity to load up on the best junior resource companies at fire-sale prices. You wouldn't insist on buying any other product when prices are high and shun it when it's on sale—so why act differently with stocks?

"You've already been through this," he said, "you've been through the pain. Why not hang on a little longer and actually enjoy the gain?"

Recovery—What Recovery?

That there's pain ahead became abundantly clear during Dr. Lacy Hunt's presentation, which ripped the rose-colored glasses off even the most blissful ignoramuses and received the vote for "most depressing speech" by many audience members.

HIMCO Executive VP Hunt—a high-profile speaker who served as senior economist at the Dallas Fed and as the chief US economist for banking giant HSBC—presented the dire facts in a pointed, easy-to-understand way. The cheerful title: "How Debt-Induced Monetary and Fiscal Policies Are Undermining the US Economic Prosperity."

Hunt is convinced that the US economic recovery is a sham. "Consumer spending," he said, "is at 2%, that's very low. We've seen lower percentages before, but never in a phase of economic expansion."

He compared economic growth throughout the entire US history with what we're seeing today. In terms of GDP growth—currently a pathetic 1.6%—we're only doing marginally better than in the 1930s, during  the Great Depression.

Then he fired off charts with dismal graph lines and numbers, one after another:

  • The US birth rate in the last two years is the lowest since the 1920s and will soon lead to redundancies in elementary and then middle schools.
  • One out of 6.5 Americans is now on food stamps.
  • The number of 25- to 30-year-olds living with their parents is at 36%, an all-time high.
  • Federal debt is currently 100% of GDP, and the US government is $60 trillion in the hole on unfunded liabilities—the only way to feel good about this is to look at Europe, which is worse off at $70 trillion.
  • Unemployment is not getting better, capital spending is not getting better, and we're seeing a significant decline in US imports and exports, as well as the average American's standard of living.

Current Fed policy is making things worse, Hunt said. Corporate profits are down, capital spending and investment is down, and we're seeing "a significant decline in both US exports and imports." Median household income has dropped 3% and is now equal to that in 1995, and the personal savings rate is the lowest since 1929.  

If the Federal Reserve wants to phase out QE, Hunt said, there'll be tremendous exit costs. Even though studies from top researchers at Stanford, Princeton, and Berkeley have found that "an expansion of reserves contracts the economy," the Fed is like a runaway train. It's now so committed to what it is doing that despite the plethora of negative data, it just won't stop.

I sort of wish he still worked for the Federal Reserve—it'd be nice if they had at least one person with some common sense on their payroll.

Inflation, Deflation, Depression

James Rickards,  Currency Wars author and senior managing director of Tangent Capital Partners, agreed with Lacy Hunt that all the talk of economic recovery is a bad joke: "If you want to know what a depression feels like, this is it."

He said most economists have been dead wrong in their recent forecasts because they assume we're in a normal business cycle—but this is anything but normal. According to Rickards' analysis, we're due to enter the second recession within this prolonged depression, which he believes will start in early 2014.

"Deflation is the Fed's worst nightmare," he said. To maintain a semblance of control over the economy, Bernanke & Co. have to manipulate Americans into behaving in certain ways—by keeping real interest rates in negative territory, they encourage people to borrow, and they use inflation expectation shocks to encourage them to spend.

In the last installment of the game, Rickards said, the Fed will employ the "helicopter money" tactic, putting more money directly into the hands of the populace by persuading the US government to provide tax cuts.

How did he manage to accurately predict that there would be no easing of the easing this year? Simple: "The Fed said, 'We taper if the economy grows according to our forecasts'—but their forecasts are always wrong."

He said Bernanke is playing a very dangerous game: "The Fed thinks it's playing with a thermostat, but in fact it's playing with a nuclear reactor, and if they do something wrong, they'll cause a meltdown."

Energy's Future: "People Will Have to Become More Pragmatic"

Aside from money, it's indeed energy that makes the world go around—so the Energy Panel with Spencer Abraham, former US energy secretary, Lady Barbara Judge, chairman emeritus of the UK Atomic Energy Authority, Uranium Energy Corp. CEO Amir Adnani, and oil explorers Keith Hill of Africa Oil and Michael Greenwood of PRD Energy was one of the most raptly watched events of the Summit.

One of the topics was shale oil exploration and fracking, a topic that is becoming more and more critical for European countries striving to get out of Russia's energy chokehold.

Michael Greenwood said that PRD Energy, which is currently test-drilling in an oil-rich area in Germany, is moving cautiously. Unions and environmental groups in many European countries vehemently oppose fossil fuel exploration and fracking, but he believes that sooner or later, those countries will have to deal with these important matters of national energy security.

(As an interesting aside, the documentary Gasland, which created a worldwide anti-fracking hysteria, was funded by Abu Dhabi and Russian state-owned oil and gas company Gazprom.)

Lady Barbara Judge also sees a future for nuclear power in Europe, despite the current  negative attitude, because "the CO2 story will make oil less and less attractive, and green energy doesn't work."

Africa Oil President and CEO Keith Hill agreed. Since the cheap, easy-to-extract oil is pretty much gone, he believes the oil price will go to $200 per barrel in the not-too-distant future. "Eventually oil is going to price itself out of the market. It's still the best energy out there, but in the next 20 years, other forms of energy will become more and more important."

"The Market Is Manipulated"

Andy Miller, partner and co-founder of the Miller Frishman Group, stepped up to the podium to give a much-needed update on real estate.

He believes that the housing market is headed into another recession. "I don't see a recovery, I see a manipulated market," he said, pointing out that the US home market also has an impact on consumer spending and employment.

More and more single-family homes are now owned by large hedge funds and other institutional investors, and the government is forcing them to fix up the homes and rent them out. "When you buy a single-family home, all you can hope for currently is a 3% yield," said Miller. "So they're in it for an appreciation play."

It's a dangerous game, though: "First-time homebuyers and individual investors are a fickle crowd; they get out of the market immediately when the numbers don't work for them." And the recent rate increases have already removed a lot of purchasing power from buyers.

Overall, the news from the housing market is not that good:

  • New-home sales have fallen since 2008.
  • 20-22% of Americans are underwater with their mortgage, but Miller believes that the real number of "zombie homeowners" who can't sell or move may be around 40-45%.
  • Car and truck sales are trending up—a bad omen, said Miller, because "no one goes out and buys both a house and a new car."

His personal strategy: He circled 250 minor markets in the US and bought multi-family homes in resource-rich, booming regions.

How important are Fannie Mae and Freddie Mac for the mortgage market? "They dominate the market right now; if you turned it over to the private sector right now, it would be a calamity."

Something Wicked This Way Comes

That something big—and potentially nasty—is coming is not hard to believe after listening to Dr. Elizabeth Lee Vliet and Marc Victor.

Dr. Vliet is an acclaimed expert on Obamacare, and has nothing good to say about it. The "Affordable Care Act" will indeed make health care more expensive, she said (Ron Paul quipped in his keynote speech that if you want to know what a government bill really does, just assume the opposite of its name).

How Useful Are You to Society?

But that's not the worst of it: Americans will actually lose their choice of treatment. Government-appointed panels will decide what kinds of treatment are appropriate for you, and if Dr. Ezekiel Emanuel (brother of Rahm Emanuel) has his way, many surgeries and other treatments will be "attenuated" (i.e., rationed) for those over 45. That means expensive procedures like hip replacement or triple bypass probably won't be approved.

"No problem," you say, "I'll pay for it myself, then."

But no, you may not even get surgery if you're loaded. According to Dr. Vliet, "hold harmless" clauses in many health insurance contracts prevent doctors and hospitals from providing care that government or insurance reviewers have deemed medically unnecessary. Most patients have no clue these provisions exist. So you have two options: suffer in silence (and die quietly, if you please), or become a medical tourist.

We're moving toward a single-payer system, as in the UK, said Dr. Vliet. "In the UK, if you suffer from macular degeneration, you have to go blind in one eye before you can get surgery to save your remaining eye." Prostate cancer, which is very treatable when taken care of early, has a +90% survival rate in the US—in the UK, with 18- to 24-month waiting lists, it's only 53%.

"Never Mind the Ticket—Just Try Not to Get Yourself Killed."

But it's not just our health care needs that will be completely run by the government, said Arizona criminal-defense attorney and liberty advocate Marc Victor: the police state is already upon us.

He's not one to mince his words: "If you believe that the Constitution is protecting you, let me tell you: the Constitution isn't protecting you from anything. It's merely words on paper; any creative lawyer can interpret them any way he wants."

If you have a car, they own you, he says. For example, if you get in a traffic stop with drug-sniffing dogs, there are two signs that the dog "alerts":

  1. The dog changes its respiratory pattern
  2. The dog changes its posture.

In other words, "if the dog 'alerts' for any reason, or the dog's handler says it does, they're going to rip your car apart."

On a regular basis, Victor holds classes on what to do when you get pulled over in a traffic stop. "Most of my advice is about how not to get yourself killed, never mind the ticket. Don't try to get out of a ticket; just pay it and keep your mouth shut – you don't know who you're messing with."

You can hear all of the presentations and panel discussions—including detailed investment advice and specific stock picks from the Casey editors—via our Summit Audio Collection on CD and MP3. For just another few days, you'll save $100 by pre-ordering. Click here to order now.

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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