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Guest Post: How to Navigate An Economy Weighed Down By Government Meddling and Cronyism

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Submitted by Doug Hornig of Casey Research

How to Navigate An Economy Weighed Down By Government Meddling and Cronyism

If you wanted to sum up the just-concluded Casey Research/Sprott Inc. Summit titled Navigating the Politicized Economy, you could say "The situation is hopeless but not serious."

More than 20 speakers – many of them world-renowned financial experts and best-selling authors – gathered in Carlsbad, CA, from September 7 to 9 to ascertain exactly how hopeless, and what investors can do to protect themselves.

Casey Chief Economist Bud Conrad reconfirmed – with a blizzard of charts and graphs – that the ship of state is still heading for a fiscal iceberg… and that iceberg looms closer by the day.

The US national debt has far outpaced the government's ability to pay it off. It's unsustainable – and made continuously worse by the Federal Reserve, which pushes more and more debt onto its balance sheet, blowing up an ever-bigger bubble. And with the recent announcement of QE3 – read "money-printing without any limits" – Conrad thinks the resulting pop! will be one that will make the entire globe's ears ring.

Eric Sprott, founder and CEO of Sprott Asset Management and one of the most highly regarded asset managers in Canada, reminded Summit attendees of the difference between "liquidation" and "bailout." The last liquidation event on Wall Street was the collapse of Lehman Brothers; since then, bailouts have been the order of the day. That says as much about the health of the financial sector as it does about the banks' friendly relations with Washington, D.C.

Sprott is convinced that the real death knell for the current financial system just may have been sounded by the emergence of NIRP (Negative Interest Rate Policy). In July, the German government was able to sell bonds with a negative interest rate – in other words, when the bonds reach maturity in two years, investors will get 0.06% less than they put in. They're ironclad guaranteed to lose money.

And yet people have gobbled up those "investments," content to park cash in German bonds that will lose less (or so they believe) than the bonds of other, shakier Eurozone countries with a high positive coupon rate. Or alternatively, they may be betting on the collapse of the euro and subsequent settling of their bonds in more stable, new Deutsche marks. In either event, NIRP is not a healthy sign for the Eurozone.

Consequently, Sprott is highly invested in gold and in what he terms the investment of the coming decade – silver.

Another speaker with no love lost for the government and Federal Reserve is G. Edward Griffin, author of The Creature from Jekyll Island, an exposé of the Federal Reserve that became an instant classic.

Griffin believes that rather than being a failure, the Federal Reserve has been vastly successful. The problem is, he said, that the American public has no idea what it actually is that the Fed set out to do. Its mandate is not, said Griffin, to ensure currency stability nor to keep the US economy afloat. Instead, since its inception, the Fed has only had one purpose: to serve its member banks.

Griffin made no secret of his conviction that the Fed is a criminal organization engaged in the legalized plunder of the American population. Through excessive money-printing and the ensuing inflation, the Fed is basically imposing a massive tax. It's a stealth tax, said Griffin – but as old Will so aptly stated, "A rose is still a rose by any other name."

Americans, Griffin asserted, have been completely hoodwinked as to what's happening, namely that they are being robbed on a massive scale. Since the gold standard was abandoned in 1971, the dollar has lost 80% of its value. If this kind of larceny had been done out in the open – say, by the government imposing an 80% income tax for 40 years – we would have had another "Off with their heads" French Revolution in D.C. a long time ago.

If Griffin's arguments left any shreds of trust in the US government, they were swept away by the Hoover Institute's Peter Schweizer. Schweizer, author of the instant best-seller Throw Them All Out, demonstrated how members of Congress can arrive in Washington as middle-class citizens and leave a few years later with millions in the bank. Their "secret of success": due to convenient loopholes, it is perfectly legal for our nation's finest to act and trade on insider information they hear in closed-door meetings. Accordingly, the crash of 2008 that nearly bankrupted many ordinary investors, said Schweizer, made a lot of legislators from both sides of the aisle a fortune.

After all those eye-opening and rather dismal revelations, several speakers were asked by the audience how much of their portfolio should be devoted to the ultimate crisis hedge of precious metals. Bud Conrad's answer: 50%. G. Edward Griffin: 51%. Eric Sprott: "I'm all in."

But far from just presenting the problems, the Summit's blue-ribbon faculty also came up with solutions for investors – how to protect their assets and how to profit even in the toughest of times.

"Be afraid when people are brave; be brave when people are afraid," advised Rick Rule, founder and CEO of Global Resource Investments.

Investing necessarily involves a series of hits and misses, said Rick, and whoever claims that they correctly anticipated all of the market turns of the past thirty years is simply lying: "No one has a system that turns out uniformly positive results. If they did, everyone would be using it."

Rick said the best lesson to learn from our mistakes is that we will continue to make them. "The trick is not to be right all the time," he says, "it's to be right more often than you're wrong." And to position yourself ahead of trends that are unstoppable, then to wait for the market to come to you. That takes patience, the courage to buy when others are selling, and the discipline to sell into a market that is roaring higher.

As an example, he bought uranium mining stocks at a time "when you could hardly give them away," during the depths of a bear market in the sector. While most pundits declared nuclear power dead, Rick knew its resurrection was inevitable (which, as he often points out, doesn't mean it's imminent). And he did have to wait for it for five years, but in the end he had the last laugh.

He mentioned Paladin, a uranium miner that looked like a bargain at $0.10 a share. It promptly fell to $0.01, a 90% decline that drove most speculators straight to the exits. But those who toughed it out or even added to their positions on the nosedive, were more than amply rewarded when the stock subsequently soared to $10… for a whopping 9,900% gain.

Rick said he's quite optimistic, even though the junior resource sector in which he specializes has suffered through a lengthy bear market. The remedy for the investment blues, he suggested, is to be secure in the knowledge that all bear markets end and to muster the intestinal fortitude to wait them out.

John Mauldin, head of Mauldin Economics and best-selling author of Endgame: The End of the Debt Supercycle and How It Changed Everything, was optimistic as well. While he sees an economic catastrophe approaching next year that is unavoidable if Washington, D.C. keeps digging itself into the debt ditch we're currently in, he doesn't think it's inevitable, provided that the political class takes a few simple steps to deal with the five most pressing problems we have – namely, in order: the deficit; the deficit; the deficit; the deficit; and, yes, the deficit.

John believes that if the federal government can manage to cut it by at least 1% per year for the next five years, the economic ship of state could stay afloat, and that it will happen: "Those in power get it; they know that tax revenues will have to go up and that spending will have to be trimmed."

They also know, he said, that doing these things will cause recession and bring a world of hurt to a lot of people. But he asserted that they also understand that to put the needed changes off any longer will precipitate a crackup that'll have Americans pining for the salad days of the 1930s.

Another of the most dynamic and optimistic Summit speakers was Casey Research's Chief Technology Investment Strategist Alex Daley, who detailed some of the technological developments that have marked 2012 as the year of the breakthrough.

A lot is happening in the tech field, but Alex's larger point was that change is coming at an increasing rate and a plummeting cost. Just for one example, Alex pointed out that it took 13 years and billions of dollars to successfully sequence the first human genome. Eleven years later, we can do it in 24 hours at a price that will soon drop below a thousand dollars.

With today's rapid advances in nanotechnology, robotics, gene-based therapies, 3D printing, and the digitization of just about everything, the future's so bright that even the most dire pessimist must find something to be hopeful about.

In the same spirit, Dr. Thomas Barnett, author of The Pentagon's New Map: War and Peace in the Twenty-First Century, electrified the audience with his after-dinner keynote speech. For the better part of an hour, he held everyone spellbound with words and stunning graphics depicting the changes – demographic, cultural, religious, political, economic – that he sees coming over the next 40 years. And he is quite the optimist.

Much of what he predicted runs counter to commonly held views. Taking China, for instance, he said that we are not entering "China's Century," as so many have written in the popular press. He believes China's ascendancy will last only about 15 years before the country hits several inevitable walls, and that the rest of the 2000s will belong, once again, to America. He also projected that the Muslim world will be more at war with itself than the West.

 

 

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Thu, 09/20/2012 - 17:07 | 2816268 slaughterer
slaughterer's picture

OMG, Casey-droids gathered in SCal.  ZHers, I hope you know how long Casey has been droning the "buy junior miners end-of-world party line"?  Is it since 1995?  1985? 1975?  How long has Casey been wrong?  Ask yourselves that simple question?    

Thu, 09/20/2012 - 17:22 | 2816306 Bay of Pigs
Bay of Pigs's picture

LOL. Silver is up from 4 to 35 the last decade. Gold 252 to 1770. WTF are you looking at pal?

And since you're talking shit, what do you suggest people invest in during ZIRP and NIRP environments? 

Thu, 09/20/2012 - 17:27 | 2816322 slaughterer
slaughterer's picture

BUY MBS and the shittiest of the shitty financials with the most MBS on their books.  That is my investment advice.  Do a comparative chart against my investment advice and that of Casey Research and see where you are in 6 months.  Thank me later.   

Thu, 09/20/2012 - 17:32 | 2816332 Bay of Pigs
Bay of Pigs's picture

MBS's? LMAO.

You're a fucking retard.

Thu, 09/20/2012 - 18:17 | 2816420 BooMushroom
BooMushroom's picture

Sadly, the fucking retard may have a point... Didn't Helicopter Ben just announce he was going to circle his chopper over MBS-land while he was throwing money out the door for the next 4-16 months?

Not that I'd sell my PMs, but you DID ask for an alternative.

Thu, 09/20/2012 - 18:46 | 2816460 Bay of Pigs
Bay of Pigs's picture

Yeah, fair enough. I had friends wiped out on ABS and MBS Madoff type ponzi's. They can vanish in an instant. POOF.....aaaaaaaaaaaand it's gone.

No thanks.

Thu, 09/20/2012 - 19:26 | 2816524 LMAOLORI
LMAOLORI's picture

 

 

Next 4 to 6 months he said indefinite the only way that will change is if obama is voted out and ben is thrown out. Slaughterer makes an excellent point (even though I personally wouldn't buy them) but not very many can fight the Fed. Plenty of people are making money investor's are gobbling up real estate for a steal literally this was the plan months ago. It will take a little time but those MBS's will be sold to everyone just like the last time pension funds, insurance companies, etc. After the election taxes will be raised hello anyone remember the deficit reduction committe they will also be cutting entitlements. Just out today comes this gem...

 

In about-face, Fed official eyes low rates for years

 

Thu, 09/20/2012 - 23:13 | 2816875 nofluer
nofluer's picture

Only 15 months 'til the puppet master changes marionettes...

Thu, 09/20/2012 - 21:52 | 2816718 Thomas
Thomas's picture

"Sadly, the fucking retard may have a point" That was very funny.

Thu, 09/20/2012 - 20:26 | 2816610 Papasmurf
Papasmurf's picture

"BUY MBS and the shittiest of the shitty financials"

There's a difference between being a contrarian and being a fool.

Thu, 09/20/2012 - 17:13 | 2816277 dobermangang
dobermangang's picture

New gaffe of the week: "You can't change Washington from the inside." - Obama

I guess his new campaign slogan is "Hope and Can't Change".

At least he's now admitting to being a failure.  You just can't make this stuff up.

Thu, 09/20/2012 - 17:15 | 2816283 walküre
walküre's picture

Sodium Pentothal?

Thu, 09/20/2012 - 18:50 | 2816467 Count de Money
Count de Money's picture

He means "I can't change Washington from the inside. And since I am the inside, I guess I'm not going to change."

He just rationalized why he should be voted out.

Fri, 09/21/2012 - 00:45 | 2816982 prains
prains's picture

there is no voting out because the turnstile ushers in exactly the same shit in a different suit

nothing changes until the entire process is rebuilt

Thu, 09/20/2012 - 19:36 | 2816536 Miss Expectations
Miss Expectations's picture

There were 2 quotes this week that caught my eye.

One was from Brooke Astor's butler talking about Brooke's son Anthony Marshall who stole $60 million from her:

Chris Ely, who was Astor's butler, said: 'They looted and terrorised [Astor], and now he has reverted to the coward he is. He should just suck it up and go to jail.'

The other was from Patrick Stewart, who after waiting for 36 hours for Time Warner to connect his cable in Park Slope tweeted "I have lost my will to live."
Thu, 09/20/2012 - 21:56 | 2816733 DosZap
DosZap's picture

dobermangang,

New gaffe of the week: "You can't change Washington from the inside." - Obama

 

 

You missed his point entirely, as has all who voted up.IF it was thinking HE meant he was a failure.

HE has succeeded in doing EXACTLY what he wanted to do,he has been wildly successful.

What HE meant was, NO ONE can work using our 235yr old system, and CHANGE it the way HE and his ilk thinks should be done,so what has HE done?.

Totally ignored the Constitution,and end running Congress every chance he gets,and has issued multiples of EO's removing basic American rights on a whim, with the help of BOTH parties, or NO party.

HE has been sorely misjudged.........................sorely.

HE has taken the candy mans shop away from him, and locked himself inside.

Fri, 09/21/2012 - 01:56 | 2816807 Al Gorerhythm
Al Gorerhythm's picture

"You can't change Washington from the inside." 

Maybe Ron Paul should heed that advice and start a third party. Too late for that I guess. After 40 years of trying and eventually being defeated by the duplicity of his own party, Ron has been cast out into the cold, left only with his internet platform to voice concerns (platitudes to many followers) about wayward government policy.

As both parties are in it for one thing only, I'm thinking that the advice given by the Founding Fathers is all that is left and their strategy to defeat them is written into the constitution. Revolt, ...... by going all in precious metals. Deny them your wealth through the inflation of their corrupt money. Don't use their money. You've been taxed 82% since 1971!!! Revolt!

The strategy listed by Slaughterer above, only perpetuates the $ ponzi and illustrates the gambling mentality that has been thrust upon us in order to survive. Being a producer in this QuEer environment can only lead to bankruptcy. Replacing goods on the shelf in inflationary times is a growing worry for retailers and purchasing managers.

Peacefully........... Revolt!

Thu, 09/20/2012 - 17:15 | 2816280 dwdollar
dwdollar's picture

John believes that if the federal government can manage to cut it by at least 1% per year for the next five years, the economic ship of state could stay afloat, and that it will happen: "Those in power get it; they know that tax revenues will have to go up and that spending will have to be trimmed."

Let me guess... John isn't battling for survival by operating in the black market because taxes are already too high.

Thu, 09/20/2012 - 22:46 | 2816814 FreedomGuy
FreedomGuy's picture

The government will not shrink until we quit asking it to do stuff. It is the core flaw of Republican fiscal policy. They suppose government can keep doing everything it does now and shrink. Won't happen.

Fri, 09/21/2012 - 09:39 | 2817498 RKDS
RKDS's picture

Exactly.  Republicans love big government.

Sat, 09/22/2012 - 13:40 | 2820521 DosZap
DosZap's picture

Exactly. Republicans love big government.

IF I must, I will take big government, over fascism anyday.

Sat, 09/22/2012 - 14:35 | 2820663 FreedomGuy
FreedomGuy's picture

I categorically disagree with that. There is a part of the Republican party that doesn't mind large government. Personally, I wish they would leave and join the Demoracts. The bigger problem is they are afraid of the reaction if they even suggest cutting or eliminating entitlements.

Sat, 09/22/2012 - 14:35 | 2820664 FreedomGuy
FreedomGuy's picture

I categorically disagree with that. There is a part of the Republican party that doesn't mind large government. Personally, I wish they would leave and join the Demoracts. The bigger problem is they are afraid of the reaction if they even suggest cutting or eliminating entitlements.

Thu, 09/20/2012 - 17:15 | 2816281 RacerX
RacerX's picture

There's too many words in this article. Cliff's notes please.

Thu, 09/20/2012 - 17:16 | 2816286 dobermangang
dobermangang's picture

Slacker!  You 47 percenter!

Thu, 09/20/2012 - 18:55 | 2816482 blunderdog
blunderdog's picture

Cliff notes: Stay nimble.  Don't let your inherent beliefs harm your ability to adapt to changing conditions.  The world is an unpredictable place.

Thu, 09/20/2012 - 18:58 | 2816489 NoTTD
NoTTD's picture

It's in the first pargraph: "The situation is hopeless but not serious."

Thu, 09/20/2012 - 20:34 | 2816621 spanish inquisition
spanish inquisition's picture

The Government and the Fed is like the mob. You will never be made, but you can operate carefully around the edges of the system. Currently they are skimming too much and impacting the economy. Someone thinks they should lower the vig for 5 years.

Thu, 09/20/2012 - 22:19 | 2816770 CPL
CPL's picture

Some guys had a meetup, talked about money and shit.  

Oh yeah they were old dudes that sayd there won't be any muny for the new iphone cause China or some shit.

Fri, 09/21/2012 - 01:58 | 2817036 Al Gorerhythm
Al Gorerhythm's picture

What's Cliff got to do with it?

Thu, 09/20/2012 - 17:18 | 2816291 slaughterer
slaughterer's picture

Casey-droids are the Scientologists of the PM space.  They are the Buy-em-and-hold-em of the junior miners despite all painful setbacks.   Zh is much better than the Casey-cult: purge Doug Casey from the sacred ZH space.  PLEEEEEZE.  Doug Casey and his minions are dangerous to your bottom line.  BEWARE. Casey is the ORIGINAL DOOMER/con-man.  Way ahead of Tyler, chronologically.    I wear a "Death to Doug Casey" T-Shirt everyday, and I am long phyzz  gold/silver just as much as everybody here.  Casey went south with these type of seminars.  OMG.  Get him out of ZH.  OUT! OUT! Damn Casey spot.      

Thu, 09/20/2012 - 17:30 | 2816328 Bay of Pigs
Bay of Pigs's picture

I've heard Casey, Sprott, Turk, Embry and many others speak at gold conferences over the years (late 90's to present). They were all FREE to get in.

You are completely full of shit. 

Thu, 09/20/2012 - 17:37 | 2816347 anarchitect
anarchitect's picture

You're a class A wanker. I retired in my mid-40s thanks in part to Casey. Almost every time he talks about junior miners, he calls them "burning matchsticks" or "trading sardines". Those who lack a pair or who are foolish enough to go all in should limit their PM exposure to bullion and royalty/streaming plays like FNV, RGLD, and SLW.

Thu, 09/20/2012 - 17:19 | 2816294 Vet4RonPaul
Vet4RonPaul's picture

Thanks for the notes!  I'm ordering the books now.

Thu, 09/20/2012 - 17:26 | 2816314 slaughterer
slaughterer's picture

Ha ha. +1  "Crisis Investing" is my favorite from Dougie.  At least, he had hair still for the pub photo.   OMG, the most advanced and sexiest HF blog (ZH) gives space to Casey.  I hope Dougie paid you for this favor, Tyler.  

Thu, 09/20/2012 - 18:12 | 2816416 JohnKozac
JohnKozac's picture

What's:

8% inflation + NIRP = ?

Thu, 09/20/2012 - 18:44 | 2816458 Peter Pan
Peter Pan's picture

So the question is whether the promising developments
can outrun the approaching tsunami or whether the good news will take over once the tsunami has hit.

Thu, 09/20/2012 - 18:47 | 2816465 Count de Money
Count de Money's picture

Just navigate yourself to the polls and vote Obama and his champagne Marxist cronies out. And while you're at it, turn Obama's stooge, Harry Reid, into the Senate minority leader.

Thu, 09/20/2012 - 19:30 | 2816529 EscapingProgress
EscapingProgress's picture

In the last 200+ years the USA has been in existence has voting ever lead to a decrease in the long-term net growth of gov't?

Fuck voting.

Thu, 09/20/2012 - 18:55 | 2816480 NoTTD
NoTTD's picture

"The situation is hopeless but not serious."

 

Schlimmer!!!!!!

Thu, 09/20/2012 - 22:59 | 2816844 JuicedGamma
JuicedGamma's picture

.

Thu, 09/20/2012 - 22:32 | 2816790 sasebo
sasebo's picture

Sorry to shit in your mess kit --------

The fed is buying tb with what? Digital money created on a computer --- From whom? The tbtf. Why?  To lower mortgage rates.

Why? To try to make people buy houses & make house prices go up. Why? To try to make mbs on tbtf books worth something.

NOT WORKING  --

So now what? Try another ponzi ------

The fed will now buy mbs from tbtf at par, with what? Digital money created on a computer. So what are the tbtf doing with all the brand new, freshly created digital money? Buying stocks to make the price go up, paper asset inflation. Why? Cause thats the only way the tbtf can make any money besides selling tb & mbs to fed. The only way to make big bonuses.

Why not too much price inflation? Tbtf has all the money. Just enough left in the real economy to make it work -- barely. 

 

Fri, 09/21/2012 - 02:52 | 2816901 cranky-old-geezer
cranky-old-geezer's picture

 

 

Americans, Griffin asserted, have been completely hoodwinked as to what's happening, namely that they are being robbed on a massive scale. Since the gold standard was abandoned in 1971, the dollar has lost 80% of its value.

Dollar debasement is the most important investing factor in the forseeable future. 

Any investment tied to the dollar will lose value as the dollar loses value.  Even if you're getting 5% / yr nominal return, you're  losing 10% net value as the dollar loses 15% value per year.

This is difficult for the average person to comprehend.   Numbers on their account statement look like they're making money.  But dollar debasement isn't shown in the numbers on their account statement.   That's the problem.

They see it when they buy groceries, fuel, gold, silver, etc, which aren't getting more valuable, dollars used to buy them are losing value, so more dollars are demanded by the seller.

My investment guidelines are simple:

1) Counterparties are untrustworthy.

So avoid counterparties.  No investment involving a counterparty. 

The Fed is a counterparty re the US dollar, so no dollar-denominated investments.

2) Fiduciaries are untrustworthy.

So avoid them.  No investment involving a fiduciary (where you have an account).  MF Global being an example.

"But you could buy MBS dirt cheap and watch the value rise during QE."

Sorry, it would involve a fiduciary (an account with a broker).  I learn fast.  MF Global was all the proof I need to stay away from fiduciaries.

3) If you don't have possession of it, you don't have it.

So physical possession is required. 

4)  The economy is getting worse, and won't turn around in the forseeable future.

No investing in real estate nor anything else losing value from demand collapse in a declining economy.

5) The US dollar is being rapidly debased by out-of-control Fed printing to keep the federal government going and keep the bond market going.  Hyperinflation then currency collapse are inevitable.

Another reason to stay away from dollar-denominated investments, besides the counterparty and fiduciary problems.

"But with these guidelines you're really limiting your investment possibilities".

Oh well.  At least I can sleep at night.

"But we can't make any money off you."

Tough shit.  Go bankrupt, I don't care.

Paper investment brokers across American are in trouble as more people flee them due to high fees, rigged markets, and examples like MF Global.

Tough shit.  They can all go bankrupt.

By the way, I figured out why pension fund managers will go along with government confiscation.  They're way under-funded.  Government confisacting all the assets in exchange for IOUs gets them off the hook.  They can shrug their shoulders saying the government took it all, it's not their fault.

Fri, 09/21/2012 - 08:01 | 2817245 Seize Mars
Seize Mars's picture

Geezer: best post I've read in a while.

Very wise.

1) Counterparties are untrustworthy.

2) Fiduciaries are untrustworthy.

3) If you don't have possession of it, you don't have it.

4)  The economy is getting worse, and won't turn around in the forseeable future.

5) The US dollar is being rapidly debased by out-of-control Fed printing to keep the federal government going and keep the bond market going.  Hyperinflation then currency collapse are inevitable.

 

Fri, 09/21/2012 - 04:05 | 2817080 Jack Sheet
Jack Sheet's picture

John Mauldin - what a prize dickhead.

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