Forecasting the Future

by David Galland

Dear Reader,

There are people who will tell you they can see the future as clearly as if it were sitting in their hand.

Even if I wanted to, I couldn’t begin to recount how many times I’ve read some pundit or another stating unequivocally that on a certain date X will occur – with X being the crash of the stock market or a rocket-shot spike up in silver, or some such. One widely distributed commentary had it that on a certain date – a date that came and went without incident – the U.S. was going to bomb Iran’s nuclear facilities.

When confronted by such black-and-white forecasts, especially revolving around a specific date, I don’t limit my salt intake to a single grain but rather help myself to a heaping spoonful of the stuff. If for no other reason than that if one smart guy were able to discern that some confluence of factors made a major move in a major market a sure thing – then it’s almost certain so would many others, and the market would adjust in advance.

That’s not to say that we can’t look over the horizon and see, at least in broad strokes, that something this way comes. As an example, it takes no special clairvoyance to see that the world’s largest debtor governments are losing the fight to maintain the credibility of their fiat systems. And so we can forecast, as we have done to the point of boring, that there’s no way the dollar, the euro, or the yen (among many others) are going to come out of the other end of this crisis without first having been soundly debased. This sort of future-gazing doesn’t come from pondering the imponderable but rather from straightforward math with a hearty dose of political realism.

Another form of future-gazing that offers some utility revolves around identifying who has power and then trying to understand what their interests are and how they might go about securing those interests. Thus, for example, it was easy to forecast that Julian Assange of WikiLeaks would soon find himself “doing porridge,” as some Brits refer to spending time behind bars.

Arrested in London today on what appear to be trumped-up charges and then refused bail, Assange will be lucky to walk the streets again as a free man anytime soon – and maybe never. That’s because there’s credible talk that once the Swedes are done with him, he’ll be shipped off to the U.S. where the Sith Lords have plans to make him regret the day he was born – or at least the day he came up with the idea of airing the Empire’s dirty laundry.

Think what you want of WikiLeaks, if the U.S. renditions him from Sweden and puts him on trial in the U.S. – no doubt without the presence of media, “for national security purposes,” I think they’ll make him a hero around the world… and do yet more damage to the reputation of the nation’s government. Of course, that’s just an opinion, and we all know what those are worth.

Which brings me to the actual point of this article, and one of my worst forecasts – that Team Obama would retroactively repeal the Bush tax cuts to the beginning of 2010 (Retro-Taxes, Nov. 6, 2009). That forecast was based on a combination of math – i.e., I simply didn’t believe that the government could run deficits at the level it has – and the fact that Obama and the Democrats had made the “unfair” Bush tax cuts a steady whipping boy in the campaign leading up to the last presidential elections.

As I shouldn’t have to say, I’m no fan of any tax increases, but given the size of the gap between the incoming and the outgoing, and the fact that the Democrats controlled all the levers of government, it is actually quite amazing to me that not only didn’t they push for an early repeal of the Bush tax moratorium while they still had the political juice to do so – but they are about to extend those cuts another two years. And are doing so while the Fed pumps out a hundred billion or so in fresh money each month in support of elevated government spending… spending that will soon include offering unemployment benefits for up to three years for millions of Americans.

In the next edition of The Casey Report, Congressman Ron Paul sat down for a comprehensive interview with Donald Grove, our man in Washington. The interview is very interesting because it offers an insider’s insights into a wide range of topics – from the odds of repealing some or all of the new healthcare bill, to the TSA, to the size and cost of the U.S. military, to the unemployment extension, to taxes, political deadlock, and much more. But it is Ron’s clear-eyed analysis of the outlook for U.S. government spending that is probably most important. (No-risk trials to The Casey Report are still available.)

As Ron makes clear, as do your own observations, there is nothing on the political horizon that is supporting a fundamental shift in the government’s willingness to engage in record levels of deficit spending. While the new Congress may prove to be a brick wall to any new and expensive initiatives, such as cap and trade, the natural slope for government spending is up, not down.

While that is very bad news for financially conservative savers and anyone who relies on a fixed pension – because the underlying currency unit is going to hell in the proverbial hand basket – it is very good news for the observant. Because as speculators we can see what’s coming and know how protect ourselves and profit by buying inflation hedges on the dips.

Speaking of which, I have to believe – but can’t actually know – that gold and silver, and the related stocks, have to pause for a breath or two here. Not based on any special knowledge, but because in my experience, anytime a market runs as hot as these markets have run since the brief correction last month, new investors will be hesitant about diving in at the same time that early investors look to take a profit. It’s also important to remember that the institutional investors are starting to pile into the precious metals – and as often as not, they are compensated with large bonuses based on certain performance benchmarks. Thus, pausing now and again to lock in a profit by selling is to be expected.

As a result, do yourself a favor and don’t chase the stocks, and don’t be afraid to cycle out of stocks that have had big run-ups in order to invest in more prospective issues.

But do, if you aren’t already doing so, pay very close attention to the precious metals. You don’t need a crystal ball to see that this crisis is far from over and that precious metals still have a long way to go.

For some added perspective, here are links to a couple of excellent interviews just done during a special edition of the Charlie Rose show on gold. The first is with hedge fund manager David Einhorn, and the second features a panel with James Grant, Peter Munk, and John Hathaway, a personal favorite among the institutional investment crowd.

Charlie Rose

In this segment James Grant, Peter Munk, and John Hathaway discuss gold… link here.

In this segment, Charlie Rose interviews David Einhorn (click the box that says David Einhorn). Here’s the link.

Finally, for this bit, an apology for failing to come through in a timely manner with a write-up and analysis of your many interesting ideas on the topic of What Could Trip Gold Up? The sheer quantity of mail received on the topic, and the need to focus on The Casey Report, has kept us from finishing up that work. Now that The Casey Report is headed for the door, however, we’ll get back on it – watch this space.

Talk Torture

One of my recent errands left me standing in the UPS store for about 15 minutes, where I was subjected to Talk Torture, a method of tormenting the brain so diabolical that in no time at all, I could feel my mind going soft.

Without the least exaggeration, for going on a quarter of an hour, some cable sports station, broadcasting over a screen mounted up on the wall for the viewing pleasure of patrons, hosted a four-person panel discussing something called “LeBron James’s powder throw.”

While I’m not a sports spectator, I do know who LeBron James is, thanks to a documentary called “More Than a Game,” which I saw on an airplane and quite liked.

But until my time waiting in the UPS store, I had never heard of LeBron’s apparently famous “powder throw.” Given that four adults would spend 15 minutes discussing the nuance of his powder throw – the general theme being that the throw risked insulting certain fans – and somberly questioning whether he should or should not throw, you’d think they were discussing whether or not Obama should drop a bomb on North Korea.

With my business finally completed, I staggered out through the exit, what was left of my brain clouded and drool dripping from my chin, and rushed home to see what all the commotion was about. Here, in all its glory, is a video of LeBron’s powder throw.

I must warn you, however, that it turns out that the powder throw is just that. The man pours some talcum powder into his hands, then vigorously rubs it around precedent to… throwing it in the air. That’s it.

Now, the way I see things, each of us creates our own universe. And to some people, apparently, whether or not LeBron James throws talc into the air is important enough to include in their universe. But really, America, it’s time to get a grip.

As a country, we have some real issues to deal with. And I understand the need for mindless entertainments – but anyone who would willingly sit through fifteen minutes of talk torture on LeBron’s powder throw is living in a universe that is doomed to a bad end.

Unfortunately, a quick look around at the masses as they elbow their way into the mall for the latest in cut-rate junk suggests that many Americans are now living in a universe where LeBron’s powder throw – or the equivalent – are important.

Is it any wonder, then, that the latest rankings of students worldwide show that, despite decades of massive spending and all sorts of state-funded “jump start” programs, U.S. students rank near the bottom in math and are barely average in science and reading?

Given the importance of competing for international market share, the trend toward dumbing down America is not a good one.

Rangel – Part Two

The other day, I wrote a few cynical comments about the light slap Con. Charles Rangel received for years of tax evasion. In sharp contrast, there is the case of actor Wesley Snipes, who, though acquitted of charges of tax evasion and fraud, is being sent to jail for three years. The following excerpt is from

Wesley Snipes: Acquitted, But Imprisoned for His Bad Attitude

The Libertarian Party is standing up for Wesley Snipes as he fights a lawless show-sentence of three years in prison for failing to file a 1040 form.

From a statement issued by LP executive director Wes Benedict:

    "The three-year federal prison sentence for Snipes’s failure to file tax returns is absurd. Snipes is not a threat to anyone, and the judge who sentenced him clearly just wanted to scare others who might think about resisting federal taxes.

    "Maybe it’s worth reminding people that Wesley Snipes was acquitted of tax fraud and conspiracy charges in 2008. He was only found guilty on misdemeanor charges of ‘willful failure to file an income tax return.’

    "Why is a failure to file a tax return a criminal non-act? Should people ever be sent to prison for not doing something? If the IRS wants to come after Snipes and take his money, they have power to do that. Who does it help to send the man to prison?

    "The tax code is incredibly vague and open to interpretation. In fact, the ‘law’ is largely written by IRS bureaucrats. If they decide the law says one thing, you’re OK; if they decide it’s something else, then you’re headed for prison.

    "The federal tax code also allows for ‘selective enforcement,’ to put it mildly. Why is it that Wesley Snipes gets a prison sentence, but known tax cheat Tim Geithner gets promoted to Secretary of the Treasury? Maybe Tim should be Wesley’s cellmate. Throw tax cheat politician Charlie Rangel in the slammer too for good measure.

You can read the full article here.

That’s It for Today

As I sign off, I would be remiss if I didn’t mention Pearl Harbor. As I grew up in Hawaii and knew many people – including my stepfather – who lived through the attack, December 7 was always a “special” day, like 9/11 will henceforth be to New Yorkers. Copies of original Hawaiian newspapers published right after the attack have come down to me through the generations and are always worth a read – if for no other reason than that, in addition to the eyewitness descriptions of the attack on Pearl Harbor and of the many smaller attacks that occurred around the island (after dropping their bombs, the Japanese pilots flew strafing runs over civilian areas), there is all manner of everyday news about weddings, social events, grand openings, petty crime, and so forth. Even more interesting is a letter written to my grandfather by my great-aunt Marge from her ranch on the Big Island on the day after the attack. You can almost picture her sitting there by candlelight, writing him about the uncertain future Hawaii’s residents then faced – unsure whether the next stage in the attack would be an invasion by land.

If we as a nation got through all of that, we’ll get through all of this.

And with that, I’ll sign off for the day by once again thanking you for reading and for being a subscriber to a Casey Research service.

Until tomorrow!

David Galland

David Galland
Managing Director
Casey Research

  1. Ralph Musgrave says

    You claim that the dollar, Euro, etc can’t “come out of the other end of this crisis without first having been soundly debased.” I’m not so sure.

    Governments are currently able to run large deficits because households and firms are deleverageing. That is, they are willing to hold larger stocks of cash and government bonds than previously. Bond issues (apart from poor quality PIG bonds) are normally over subscribed. E.g. the U.K. is well ahead of schedule in rolling over its debt. And the average maturity of U.K. debt is three times longer than that of the U.S.

    Also the national debts of the U.S. and U.K. are scarcely half the levels (relative to GDP) that existed just after WWII.

    If the current willingness to hold cash and debt SUDDENLY went into reverse, you might get excess inflation. But a more gradual reversal should be manageable.

  2. John Haskell says

    During the attack on Pearl Harbor, untrained US anti-aircraft gunners fired all over the place. Some of the shells landed in populated areas, killing civilians. For the benefit of civilian morale, these deaths were attributed to mysterious “Jap strafing” and reported as such in the newspapers of the time. After the war, books such as Walter Lord’s “Day of Infamy” (freely available for purchase at the Pearl Harbor gift shop) debunked this story. Many Hawaiians read the book. But not the managing directors of Casey “Research.”

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