A new BBC poll finds that only 11 percent of people questioned around the world – and 29,000 people were asked their opinions – think that free-market capitalism is a good thing. The rest believe in more government regulation. Only a small percentage of the world’s population believes that capitalism works well and that more regulation will reduce efficiency.

One-quarter of those asked said that capitalism is “fatally flawed.” In France, 43 percent believe this. In Mexico, it is 38 percent. A majority believes that government should rob the rich to give money to poor countries. In only one country, Turkey, did a majority say that less government is better.

It gets even worse. While most Europeans and Americans think it was a good thing for the Soviet Union to disintegrate, people in India, Indonesia, Ukraine, Pakistan, Russia, and Egypt mostly think it was a bad thing. Yes, you read that right: millions freed from socialist slavery: bad thing.

That news must lift the heart of every would-be despot the world over. And it comes as something of a shock twenty years after the collapse of socialism in Russia and Eastern Europe revealed what this system had created: backward societies with citizens who lived short and miserable lives. Then there is the China case, a country rescued from bloody barbarism under communism and transformed into a modern and prosperous country by capitalism.

What can we learn? Far from not having learned anything, people have largely forgotten the experience and have developed a love for the ancient fairytale that all things can be fixed through collectivism and central planning.

As to those who would despair at this poll, consider that it might have been much worse were it not for the efforts of a relative handful of intellectuals who have fought against socialist theory for more than a century. It might have been 99% in support of socialist tyranny. So there is no sense in saying that these intellectual efforts are wasted.

Ideas also have a life of their own. They can lie in waiting for decades or centuries and then one day, the whole of history turns on a dime. Especially these days, no effort goes to waste. Publications and essays, or any form of education, is immortalized, ready for the taking by a desperate world.

As for the opinion poll, we have no idea just how intensely these views are held or even what they mean. What, for example, is capitalism? Do people even know? Michael Moore doesn’t know, else he wouldn’t be calling bailouts for elite, Fed-connected financial firms a form of capitalism. Many other people reduce the term capitalism to: “the system of economics in the U.S.” It is no more complicated than that. This is despite the reality that the U.S. has a comprehensive planning apparatus in place that is directly responsible for all our current economic troubles.

Now, let’s take this further. Among the people around the world who do not like the U.S. empire, many believe they don’t like capitalism either. If the U.S. economy drags the world down into recession, that is a prime example of capitalism’s failure. Even more preposterous, if you didn’t like George W. Bush, his ways and his cronies, and Obama is something of a relief, then you don’t like capitalism and you do like socialism.

Another point of view misunderstands the idea of capitalism itself. It is not about creating economic structures that benefit capital at the expense of labor or culture or religion. It is about a system that protects the rights of everyone and serves the common good. Capitalism is just the name that happened to be identified with this system. If you want to call freedom a banana, fine. What matters is not words but ideas.

I do know that none of these messed-up definitions of capitalism follow. You know this too. But for the world at large, serious ideological analytics are not the animating force of daily life. Many people attach themselves to vague slogans.

Further, as Rothbard has forcefully argued, free-market capitalism serves no more than a symbolic purpose for the Republican Party and for conservatives. Economic liberty is the utopia that they keep promising to bring us, pending the higher priority of blowing up foreign peoples, jailing political dissidents, crushing the left wing on campus, and routing the Democrats.

Once all of this is done, they say, then they will get to the instituting of a free-market economic system. Of course, that day never arrives, and it is not supposed to. Capitalism serves the Republicans the way Communism served Stalin: a symbolic distraction to keep you hoping, voting, and coughing up money.

All of which leaves true capitalism – a product of the voluntary society and the sum total of all the exchanges and cooperative acts of people all over the world – with few actual intellectual defenders. They are growing, but the educational work we need to do is daunting, and we are facing the most powerful forces in the world.

There is nothing new in this. In the history of the world, freedom is the exception, not the rule. It must be fought for anew in every generation. Its enemies are everywhere, but the leading enemy is ignorance. For this reason, the main weapon we have at our disposal is education.

Education includes explaining that socialism is an unworkable idea. There is nothing better than Ludwig von Mises’s 1922 book Socialism, a comprehensive presentation of the fallacy of the socialist idea. Another essential work is The Black Book of Communism. Here we have a wake-up call that shows that the dream of socialism is actually a bloody nightmare.

Then there is the issue of the positive case for capitalism. One can do no better than Mises’s own Human Action, which is not likely to ever be surpassed as a treatise on the free economy. True, it is not for everyone. And that’s fine. There are many primers out there too.

The fashion for socialism and the opposition to capitalism should alarm every lover of freedom the world over. We have our jobs cut out for us, but with numbers this bad, it is not difficult to make a difference. Every blow you can land for free markets helps protect freedom from its enemies.

Regards,
Llewellyn H. Rockwell, Jr.

November 13, 2009

Editor’s Note: This article orginally appeared as “The Triumph of Socialism” on LewRockwell.com. To view the original article, please click here.

The Triumph of Socialism, the Misunderstanding of Capitalism was originally featured on Whiskey and Gunpowder

I find it perplexing that only 20 years after the collapse of the Berlin Wall, the West continues to implement laws that mimic all of the failed policies of our former “communist” foes. In fact, our current president won the election by promising to “spread the wealth around.” But… truth be told… we don’t have to look to Eastern Europe or the Soviet Union to find a society destroyed by coercion, socialism, and the overreaching power of the State. We could just look at Detroit…

In 1961, the last Republican mayor of Detroit lost his re-election bid to a young, intelligent Democrat, with the overwhelming support of newly organized black voters. His name was Jerome Cavanagh. The incumbent was widely considered to be corrupt (and later served 10 years in prison for tax evasion). Cavanagh, a white man, pandered to poor underclass black voters. He marched with Martin Luther King down the streets of Detroit in 1963. (Of course, marching with King was the right thing to do… It’s just Cavanagh’s motives were political not moral.) He instated aggressive affirmative action policies at City Hall. And most critically, he greatly expanded the role of the government in Detroit, taking advantage of President Lyndon Johnson’s “Model Cities Program” – the first great experiment in centralized urban planning.

Mayor Cavanagh was the only elected official to serve on Johnson’s task force. And Detroit received widespread acclaim for its leadership in the program, which attempted to turn a nine-square-mile section of the city (with 134,000 inhabitants) into a “model city.” More than $400 million was spent trying to turn inner cities into shining new monuments to government planning. In short, the feds and Democratic city mayors were soon telling people where to live, what to build, and what businesses to open or close. In return, the people received cash, training, education, and health care.

The Model Cities program was a disaster for Detroit. But it did accomplish its real goal: The creation of a state-supported, Democratic political power base. The program also resulted in much higher taxes – which were easy to pitch to poor voters who didn’t have to pay them. Cavanagh pushed a new income tax through the state legislature and a “commuter tax” on city workers.

Unfortunately, as with all socialist programs, lots of folks simply don’t like being told what to do. Lots of folks don’t like being plundered by the government. They don’t like losing their jobs because of their race.

In Detroit, they didn’t like paying new, large taxes to fund a largely black and Democratic political hegemony. And so, in 1966, more than 22,000 middle- and upper-class residents moved out of the city.

But what about the poor? As my friend Doug Casey likes to say, in the War on Poverty, the poor lost the most. In July 1967, police attempted to break up a late-night party in the middle of the new “Model City.” The scene turned into the worst race riot of the 1960s. The violence killed more than 40 people and left more than 5,000 people homeless. One of the first stores to be looted was the black-owned pharmacy. The largest black-owned clothing store in the city was also burned to the ground. Cavanagh did nothing to stop the riots, fearing a large police presence would make matters worse. Five days later, Johnson sent in two divisions of paratroopers to put down the insurrection. Over the next 18 months, an additional 140,000 upper- and middle-class residents – almost all of them white – left the city.

And so, you might rightfully ask… after five years of centralized planning, higher taxes, and a fleeing population, what did the government decide to do with its grand experiment, its “Model City”? You’ll never guess….

Seeing it had accomplished nothing but failure, the government endeavored to do still more. The Model City program was expanded and enlarged by 1974’s Community Development Block Grant Program. Here again, politicians would decide which groups (and even individuals) would receive state funds for various “renewal” schemes. Later, Big Business was brought into the fold. In exchange for various concessions, the Big Three automakers “gave” $488 million to the city for use in still more redevelopment schemes in the mid-1990s.

What happened? Even with all of their power and all of the money, centralized planners couldn’t succeed with any of their plans. Nearly all of the upper and middle class left Detroit. The poor fled, too. The Model City area lost 63% of its population and 45% of its housing units from the inception of the program through 1990.

Even today, the crisis continues. At a recent auction of nearly 9,000 seized homes and lots, less than one-fifth of the available properties sold, even with bidding starting at $500. You literally can’t give away most of the “Model City” areas today. The properties put up for sale last week represented an area the size of New York’s Central Park. Total vacant land in Detroit now occupies an area the size of Boston – Detroit properties in foreclosure have more than tripled since 2007.

Every single mayor of Detroit since 1961 has been a Democrat. Every single mayor of Detroit since 1974 has been black. Detroit has been a major recipient of every major social program since the early 1960s and has received hundreds of billions of dollars in government grants, loans, and programs. We now have a black, Democrat president, who is promising to do to America as a whole what his political mentors have done to Detroit.

Those of you with a Democratic political affiliation may think what I’ve written above is biased or false. You may think what you like. But there is no way to argue that what the government has done to Detroit is anything but a horrendous crime. You may think what I’ve written above is merely a political analysis. Perhaps so, but politicians drive macroeconomic policy. And macroeconomic policy determines key financial metrics, like the trade-weighted value of a currency and key interest rates.

The likelihood America will become a giant Detroit is growing – rapidly. Politicians now control the banking sector, most of the manufacturing sector (including autos), a large amount of media, and are threatening to take over health care and the production of electricity (via cap and trade rules). These are the biggest threats to wealth in the history of our country. And these threats are causing the world’s most accomplished and wealthy investors to actively short sell the United States – something that is unprecedented in my experience.

Regards,
Porter Stansberry

November 2, 2009

Editor’s Note: A big thanks to Porter Stansberry for this article. We here at Whiskey were very eager to run it. If you would like to read more from Porter and find out about his investment research, just take a look here.

Detroit’s Socialist Nightmare Is America’s Future was originally featured on Whiskey and Gunpowder

I’m OK with state-by-state action. In fact, I couldn’t have bought the last pack of cloves in Maryland at 11:55 p.m. if I had wanted to. Because Maryland was nearly two decades ahead of the curve, mandating: “It is illegal to sell, give or otherwise distribute clove cigarettes to ANY person, even if 18 years old or older.”

I had a friend in Washington, D.C., buy my first and final pack of clove cigarettes last month — as an exercise of freedom. On my regular weekend visits (albeit on a porch in Maryland), we’ve passed a single cig from mouth to mouth on his front porch with whoever happens to be there (all over age 21, in fact). We told neighbors who popped by that this was their last chance.

Jim Nelson warned you about this back in July. But now it’s here. And the law’s been beating down on smokers — with the help of Philip Morris — for years.

A few months earlier, on a misty spring day in Annapolis, my friend wanted just one cigarette for old time’s sake at the local smoke shop. The law says she can’t buy just one. Why? Because the state says that breaking up a pack to sell “loosies” helps hook the youth. The loose logic is that a kid will spend under a buck to try it out, but will draw the line at $8 packs. I call it a state-mandated dare: Betcha can’t smoke just one. Nonetheless, this fine lady did, and as parting gift gave me the balance of the pack. Those lightly minted Nat Shermans she gave me are now contraband. (And I thought I was joking when I told her that I’d ration these dear as the real currency of wartime Berlin, with Russians at the door.)

Have we gotten so that we don’t know what it means to put adult things on a higher shelf? Can a proprietor not just keep the tempting goods under lock and key? Keep making sure to ask for ID? Show me one 12-year-old who asks for a Mocha Dream cigarette.

Over the pond in the House of Lords, its version of Family Smoking Prevention is to cover all cigarettes with a screen behind the register by 2013. So now the number crunchers are hard at work, defending the small mum and dad shop around the corner. Cost of the new display that doesn’t display: £1,850 at best. Ultimate total cost: £252 million. Hasn’t anyone ever heard of a cheap black crepe pall? The pall, from the Latin for “cloak,” is a perfect solution. Or is that, in fact, too cool? Too goth to ensnare the young death-seeking teen for that holy of holy day when he or she is finally old enough to choose risk?

Lighting up Between the Bans

Like the loosie law, we note another hypocrisy: menthols — a whopping 25% of the smokers’ market — fave of black smokers in particular, remain legal when all other flavors are banished for tempting kids to light up.

When my parents were young and poor, they drank Boone’s Farm Strawberry Hill wine. Did they drink it because it tasted like apples or berries? Here’s the reason: It was cheap. In the case of cloves, we’re talking a cost of $2 more per pack on average.

Which brings us to another smoker’s casualty: Marshall McGearty in Chicago. This place did not peddle flavored cigarettes to minors. It was an elite companion to the gentleman’s shop and the cigar bar, with a ventilation system that changed the air every six minutes. In the same way that Starbucks elevated coffee, so would R.J. Reynolds’ bar do for the cigarette. Just like ordering an espresso, you could order a pack of flavored cigarettes, blended and rolled while you waited.

This little mecca was refuge for smokers kicked out of their pleasant bar habitats once Chicago’s first-phase cigarette ban clicked into place.

At the time, the president of the Tobacco Control Resource Center, Richard Daynard, wasn’t worried. He said: “I certainly would be surprised if it’s still in business five years from now. The problem is that their clientele is not this, but mainly working-class and poor people.” Wow, that almost sounds like a belief in free markets!

According to former bartender, Griffith, the pack-a-day crowd really doesn’t go in for flavors. And most smoke emporium owners would agree with him. The typical profile is be a woman, between 22-50 years old, who smokes three a day max, but mostly as an occasional treat. (In other words, me, whom Gary would characterize as a bastion of personal responsibility.) Now the place where Griffith used to work, 1553 N. Milwaukee Ave., is a Steve Madden shoe store.

But Phase 2 of the Chicago ban — not lack of interest — killed Marshall McGearty. Since the place offered smokers wine, beer, coffee, pastries and cheese, the city banned it from allowing any form of smokes.

A ban with no exceptions has the virtue of seeming more convincing. But right now, menthol flavoring skirts any Family Act violations. For how long?

Mixed Message Brought to You By Philip Morris

Menthol — which cools and smooths the taste — has been proven in studies to make the nicotine take even better for the long-term smoking life. You’re encouraged to inhale deeper. (Just ask my friend Jimmy about that.) Take this stat: 44% of smokers between 12-17 choose menthol, yet it gets off today scot-free.

Meanwhile, take cloves. At 0.09% of the total cig-pushing market, they’re no big threat. The thing is, Philip Morris USA has no clove business. And its parent, Altria, made the smart move to split its business into Philip Morris USA and Philip Morris Intl. Back in 1995, Philip Morris also started up what’s known as Project Sunrise. This ultimate focus group worked on ways to stave off the death of Big Tobacco for as long as possible. What better than to join hands with the likes of the Campaign for Tobacco Free-Kids? This bolstered the company image as cancer stick vendors with a heart, and made it champions of what other tobacco companies are calling the “Marlboro Monopoly Act of 2009.” They look about as reformed as George W. Bush to me. But they sure did secure the fastest, cheapest way to knock out free enterprise in new forms of tobacco product.

But one company knew about Philip Morris and the mixed message. It’s been in the tobacco field since 1968. This company, known for hotel chains, cineplexes and beating Mr. Ted Turner to CBS, knew when to buy. And as we all know, investing is not just at what price you buy in, it’s when you sell. And it went all cash on this business just last year.

Why Drop Your $700 Million Per Year Cash Cow?

We think these fellas exited the biz because they knew the government could take it away. (It’s the same reason why Byron King might tell you to avoid a mining stock in Venezuela.) And when your family takes up 25 pages of Federal Election Commission reports, you bet you’re going to be two steps ahead of congressional developments.

But let’s back up a second. When Larry “King of Cash” Tisch bought Lorillard Tobacco with his brother in 1968, they knew they would get plenty of cash to catapult their millionaire-making holding company, Loews, into a billion-dollar business to pass to their sons.

Lorillard is now No. 3 in U.S. tobacco because the Tisches made their mark. The brothers bought the company for $450 million. And they immediately set to work. Turns out the former execs had spent 75% of their time on 5% of the business: candy and cat food.

Today, Lorillard’s Newports make up 35% of the menthol market. And by the company’s count, over half of those smokers are black. Back in the old days, free cigarettes were passed around Congressional Black Caucus meetings. Today, the pro-smoke policy is getting murky, although Altria is the CBC’s largest PAC donor. But the Tisch family saw menthol’s days as numbered.

When the next generation of Tisches spun off Lorillard in 2008, they made a tidy $10 billion if profits — not including nearly 30 years of juicy dividends. Make 22 times your money…and then some? That’s a money-management team I want in my court.

It should not surprise that Warren Buffett and Larry Tisch were tight. But unlike Warren with his Coke, Larry did not smoke. (That’s according to a Tisch family insider interviewed by Marie Brenner for a 1996 Vanity Fair article). For anyone who likes a moral tale — or thinks our cells have a limited functional life span no matter what we inhale — we note that Larry Tisch died of cancer at a very ripe age of 80 in the hospital that bore his family name. This gastroesophageal blight took him away from his life’s work and family on Nov. 15, 2003. His brother, Bob, died of brain cancer exactly two years later on the very same date.

When the heirs of Lorillard cut off its tobacco roots at the stem, they did so because they saw richer opportunity ahead. Cash raked in on Newports went toward something America is even more addicted to: oil and gas. This long-range metamorphosis started in the 1980s when Loews picked up offshore oil rigs aplenty at scrap metal prices. Next came its biggest investment in a decade: Texas Gas in 2003.

In case you’re wondering, the Tisch family didn’t swap their shares for Lorillard stock in the spinoff. James Tisch said it wasn’t about politics, but kindly filled a 163-page prospectus with concerns about fed officials and menthol.

So are menthol’s days numbered? Is the count down to the triple digits? Hard to tell. If you want a sign that Philip Morris will hold menthol’s ground, try its June 2009 introduction of a new menthol: Blend No. 54.

Meanwhile, I’m off to find sponsors for a new FDA study…Which is more harmful to kids (or will cost more in health care spending by 2050): cigarettes or high-fructose corn syrup? Like the fellas at Loews, I want to be ahead of the curve when it comes to “sin” investments and the legislatures that nix ’em.

And if you want to know where the Marlboro Man is lassoing new market share? Try China.

Regards,
Samantha Buker

October 1, 2009

Tobacco Ban Begins was originally featured on Whiskey and Gunpowder

What are the chances?

Well, it’s always good to bear in mind that there is no telling what the government might do. It’s already doing things that were unthinkable just a few years ago. If President Obama believes there is political hay to be made from seizing your gold – or even if he sincerely thinks such a move would be “good for the country” – we’re sure he won’t hesitate to make the grab. After all, his favorite predecessor, Franklin Roosevelt, set the precedent.

Many Americans don’t even realize that private gold ownership was forbidden for forty years, but it was. The relevant edict is Presidential Executive Order 6102 of April 5, 1933, which begins:

Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled

An Act to provide relief in the existing national emergency in banking, and for other purposes,in which amendatory Act Congress declared that a serious emergency exists,

I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations…

There was, of course, no constitutional peg on which to hang such an outrageous crime against the people, so FDR decided to fall back on the 1917 Trading with the Enemy Act, which he claimed gave him the authority to do this in order to prevent gold from falling into the “wrong” hands. If that seems a flimsy argument, it is.

But it echoes eerily today. How much of our personal freedom have we already been asked to sacrifice to the Forever War on Terrorism? And note also the reference to an “existing national emergency in banking” that requires extreme measures. Sound familiar?

So, no question that Obama could follow in the footsteps of his mentor, if he wanted to. That said, though, the likelihood of a new gold confiscation is remote, for a number of reasons.

2009 is not 1933. Back then, the money supply was constrained by the gold standard. As Roosevelt concocted the New Deal, he ran smack up against that wall. He needed more money than he had, couldn’t raise taxes in a depression, and couldn’t print dollars that weren’t gold-backed.

His solution may have been reprehensible, but it was elegant. First, make the private possession of gold illegal, paying those who surrender their metal the official price, $20.67 per ounce. Then revalue gold to $35 per ounce. Voilà: Instant inflation, lots of new money, problem solved. And the New Deal was off and running.

But we have long since abandoned the gold standard, and Obama doesn’t face FDR’s constraints on monetary inflation.  However much money is needed to finance his New Deal Redux, he can have it. All he has to do is rev up the printing press or turn an unlimited number of bits and bytes into electronic cash.

Given this kind of clout, what does he need gold for?

An argument can be made that the yellow metal is still useful. It runs like this: Creating money out of thin air is inflationary, and a large stash of gold, even if it doesn’t officially back anything, serves as a sort of counterweight. People around the world will have greater confidence in your currency knowing that, as a last resort, you can pay your bills in gold. And the more gold you have, the better.

Furthermore, confiscating gold and assigning it a fixed dollar value would also prevent the kind of runaway gold price that the coming massive inflation is bound to trigger. As those who argue that the gold price is already suppressed correctly point out, the government has decided to sacrifice the dollar in order to avert deflation. Thus a lower-than-free-market gold price helps obscure the damage that’s been done to the currency. People feel richer with more, albeit inflated, dollars in their pockets; a rapidly escalating gold price shows them that they’re not.

These two arguments aren’t empty, but they’re not convincing. Most folks in government subscribe to the “barbarous relic” school of thought about gold. Precious metals probably cross the minds of Obama’s economists only when they’re out buying jewelry.

And most American citizens have never even seen a physical gold coin, much less own one. Reeling in all the bullion out there will, in reality, do the government little if any good.

One final point. In the 1930s, when people were asked to turn in their gold, compliance was quite high. Americans believed their government when told that it was for the greater good. Imagine.

Today, that attitude seems laughably naïve. Those who have gold know that it is an unequaled storehouse of value. That they would meekly part with it at the government’s behest requires a belief that naïveté still rules the land.

Far more likely is that gold owners would resist. And since they also tend to be gun owners, there could be serious confrontations. The government doesn’t want mass resistance to one of its orders, nor an escalation of the domestic violence it will probably get anyway, when unemployment rises to Depression-era levels. It’s simply not worth it.

Never say never where government stupidity is involved. But all things considered, a modern-day gold confiscation is not high on our list of financial worries.

Regards,
Doug Hornig
Casey’s Gold & Resource Report

Are We Being Conned About Gold Consfication? was originally featured on Whiskey and Gunpowder

I don’t mean to preach to the choir, but there goes the remnant of what might otherwise have been the start of a jobs recovery.

Wage and Price Controls don’t work. You and I can see it in everyday real life. Richard Nixon tried it and failed. The Pols that run the country can’t seem to see beyond the end of their noses. Actually, they know exactly what will happen but they’re so hell-bent to reward unions, they don’t care.

Why unions? Simple. If the minimum wage is increased, naturally the union wage must also be increased. Increasing the union wage rate keeps the membership in line and fattens the pockets of the union officials. In turn, it helps get the Pols re-elected. Talk about being hypocritical. The very Pols that caused the dollar to lose purchasing power due to government deficit spending now pretend to be so munificent as to help the poor earn a “living wage.”

This is no different than rent controls or price controls. Anytime artificial numbers are substituted for what an otherwise free market would be willing to pay, somebody gets hurt. In the case of minimum wages, it’s the very low-level worker that gets hurt. If the objective is to provide employment for entry level workers, minimum wage isn’t the answer.

Would you like a job paying $6.55 per hour or would you prefer no-job paying $7.25 per hour?

It really is that simple. If you’re a marginal worker, you’re expendable. The business for which you work can perhaps justify paying you $6.55 per hour to sweep or wash dishes. When then forced to pay $7.25 per hour for the same services, the business just decides they can no longer afford to hire the sweeper or dishwasher. They make other arrangements to get the jobs done. Meanwhile, the former dishwasher is now out of a job thanks to the Federal Government raising the minimum wage.

During WWII, we had all sorts of wage, rent and price controls. Perhaps because we were involved in a major war, folks simply made-do without and devoted their efforts to helping the United States win the war. Once the war was over, most of the wage and price controls were removed. The economy then took-off like a scalded dog.

There were a few pockets of resistance however. One was Santa Monica, CA. They decided rent controls were necessary because “greedy” landlords were taking advantage of the “poor” tenants. Ditto NYC, by the way. The result was fewer units available because the very folks that risk their own money and expended their own energies to provide living accommodations weren’t willing to do so for a less-than-profitable return. Existing units were not well maintained because the owner was seldom allowed to increase rents to cover expenses. New units were exempt. Those new units were rentable at whatever the market would pay. As a result, all varieties of high-priced new units came on the market while the more-affordable units vanished. Once again, the very folks who were supposed to be helped by rent controls now found themselves with no choices, thanks to government interference.

As mentioned above, during WWII, we had price controls on almost everything. We also had coupon books that limited the quantity of almost every good we could purchase. My mom traded coupons with other moms so everyone had a chance to get what they really needed. Shortages, however, were the norm. It made almost no difference whether you had an “A,” “B,” or “C” gasoline sticker for your car because you couldn’t buy tires.

When prices and/or quantities are artificial.

Why Minimum Wage Means Maximum Slaverylly limited, scarcity is the result.

Have you heard the opposition to Obama’s National Health Care complain about rationing? This is exactly the “why” of that complaint. Some bureaucrat will decide who gets what medical treatment. The excuse is that medical costs are too high. It’s another form of wage and price controls. In this case, the result will be otherwise-avoidable deaths simply due to the rationing of medical services. And as you’ve read many times, if you think health care is expensive now, wait until you see what it costs when it’s free.

So what’s the solution? What about “all those poor people?” What’s a heartless capitalist to do?

Recall Mama Obama ranting during the campaign that “some folks are going to have to give-up some of their pie so that others can have some?” Neither she nor the multitudes like her understand the basics of Economics 101. Our economy is not a zero-sum game.

For most of my life, I raced cars and one of my favorite races was the 2000 mile La Carrera Panamericana from Guatemala to the USA through central Mexico. Let’s admit that Mexico is a poor country. That is, many of the folks are considered to be poor. Yet as I traveled throughout Mexico, I saw color TVs in cardboard shacks. I must have been really “poor” when I was a kid because we didn’t even have a black and white TV. No one did. We were one of the first families in the neighborhood to get a TV and that wasn’t until 1948. Today, even a poor Mexican can have a color TV. Why? Because contrary to Mama Obama, the world’s pie continues getting bigger. That means even the poorest among us can enjoy a living standard that wasn’t even available when I was young.

We have a bunch of politicians who continuously deficit-spend thus reducing the purchasing power of the dollar. Then they graciously increase the mandatory minimum wage in order to off-set the loss of purchasing power they, themselves, created. Do you suppose there is a moral hazard hiding somewhere in this fraud?

Regards,
Tex Norton

Why Minimum Wage Means Maximum Slavery was originally featured on Whiskey and Gunpowder

From it we draw the historic words, “That these United Colonies are, and of right ought to be free and independent States…” The resolution was tabled for the day and taken up on June 8.  But because some of the colonies, including Maryland, New York, New Jersey, Pennsylvania and Delaware, had not authorized their delegates to vote for independence (imagine that: politicians who are faithful to their constituents) the congress recessed for three weeks for the men to return home to find their colonies’ will.

Before recessing however, the congress appointed the famous Committee of Five, John Adams (MA), Benjamin Franklin (PA), Thomas Jefferson (VA), Robert Livingston (NY), and Roger Sherman (CT), to produce a document that laid out the case for independence.  The committee tasked Jefferson with the writing of the document, and the bulk of the work was his.  After his initial draft, he presented it to the committee, who made only minor revisions.  Then it was off to the Congress, where the debate really commenced.

The Congress re-convened on June 28, 1776.

It had been a hot spell in Philadelphia.  Jefferson records that on his way to what is now known as Independence Hall, he stopped to look at a thermometer.  Even in the early morning, it was already 80 degrees and rising.  Inside the hall, which was all closed up to avoid the heated debate being heard in the streets outside, some have estimated the temperatures at 100 degrees.  In the humid, bug infested convention, (there was a livery stable next door), the temperature was not the only thing rising.

Jefferson’s own design was to create a document that by its plainness and simplicity would be instructive and convincing, with arguments so plain and straightforward that none could contest them as they set forth the case for independence.  Hoping to create a document that would convince those who read it, not the least of which were many fence-sitting colonists, he listed a long section of the crimes of the King against the colonies, many of which were eventually omitted.  He also had written a substantial portion on the illegitimacy of the slave trade in MEN (capitalization was Jefferson’s).  That too was eventually stricken from the finished edit.

There were those who refused to vote.  There was even an abstention from New York in the final tally.  The young nation was being stressed at every seam in that hot, humid hall.

But on July 2, 1776, the cornerstone of the new nation had been formed.

A day later, July 3, future president John Adams wrote to his wife Abigail the following words.

“The second day of July, 1776, will be the most memorable epoch in the history of America.  I am apt to believe that it will be celebrated by succeeding generations as the great anniversary festival.  It ought to be commemorated as the day of deliverance, by solemn acts of devotion to God Almighty.  It ought to be solemnized with pomp, and parade, with shows, games, sports, guns, bells, bonfires, and illumination, from one end of this continent to the other, from this time forward forever more.”

His spirit was right, even if his timing was off by a couple days.

What was once memorized by grade school children as a world-shaping piece of literature is now known by very few modern students.

However, it’s final lines bear repeating…

“And for the support of this Declaration, with a firm reliance on the protection of the Divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.”

Of the 56 men who signed the Declaration, some names are still common among us:  Franklin, Jefferson and Hancock.  But the remaining 53 have been largely forgotten.  What kind of men were they?  What did they stand to gain from this Revolution?

They ranged in age from 23 (Edward Rutledge of South Carolina) to age 80 (Ben Franklin of Pennsylvania).  24 of them were lawyers or judges, 11 of them were merchants of various kinds, nine were farmers, and the remaining members were ministers, doctors, and statesmen.

With just a handful of exceptions, these were all men of substantial education, property and public standing.  As compared with the rest of the populace of the 1700’s, they had blessings, eases, and pleasures in life enjoyed by very few.  All of them had more to lose, than they had to gain.

John Hancock, who already had a bounty of 500 pounds on his head, was one of the wealthiest of the signers.  From a family of considerable wealth, he inherited his mercantile fortune from his Uncle, Thomas Hancock.  He was educated at Harvard, and had all that life could give him at the time.  Yet he signed his signature with such size and flourish, that “it might be read without spectacles.”

He was not alone.  The fever of liberty was running at a high pitch.  Yet each of them knew the risks.  Treason was punished by hanging.  And the consequences did not end with themselves, but extended to their families as well.  And there was already a massive English fleet docked in the harbor at New York.

And Hancock’s actions did not go unnoticed by the British.  Nor did the those of the other suspected signers.  All of them became ferociously hunted.  Delegates from New York, William Floyd, Philips Livingston, Louis Morris, and Francis Lewis, each had their homes destroyed.  Mrs. Lewis was captured and brutalized.  Though later exchanged for two British prisoners, she never recovered.  The Floyds were able to flee from New York into Connecticut, where they lived as refugees for the next seven years.  Upon their return, they found nothing left of their estate.  Livingston, whose large possessions were confiscated, died two years later still working in Congress.  Morris was deprived of his family for the next seven years.

Delegate John Hart of New Jersey, attempted to come home to see his dying wife, but was turned back by soldiers.  As she lay dying, soldiers destroyed his livestock and burned his farm.  He was hunted from pillar to post.  When the manhunt finally relented, he returned to find his wife dead and buried.  His 13 children had been taken away.  He died three years later absolutely broken, never seeing his family again.

Judge Richard Stockton rushed home from Philadelphia to evacuate his wife and children.  Betrayed by a sympathizer to the Crown, he was torn from his bed where they were hiding in the middle of the night and subjected to a brutal beating.  He was jailed, starved, and finally released after becoming an invalid.  He did not see the end of the war or its victory, and his family was required to live off of the charitable help of friends and strangers.

The list goes on and on.  One heartbreaking, gutwrenching story after another.  Each of sacred honor, fortunes sacrificed and lives lost or forever altered.  Yet not one recanted.  Not one relented.  Not one failed to deliver on his pledge to the others.

And most remarkably, there was one man…a man who had the chance to see his family spared.  A man who could have saved his two sons if only he had rejected the colonial revolution and supported the King.  He was Abraham Clark of New Jersey.  Clark had two sons who fought for the new nation.  They were eventually captured and taken to the notorious British prison ship Jersey, where more than 11,000 American soldiers died.  The two suffered most severely for the “crimes” of their father, brutally beaten and starved.

Clark was offered his two son’s lives if he would just come out in support of the King.  To those of us who live so soft and comfortably 200 hundred years in their wake, it must seem astounding that with a broken heart, he said, “No”.

Life.  Fortune.  Sacred Honor.

Regards,
Bill Jenkins

July 14, 2009

The High Cost of Independence was originally featured on Whiskey and Gunpowder

Howe and Strauss have written many books on how generations determine the course of history and how they will shape America’s future. Their forecasts on a wide variety of indicators have turned out to be amazingly accurate. They were among the first to predict (back in the late 1980s) the rise of Boomer-driven culture wars and the simultaneous rise of Gen-X-driven free agency and distrust of government. And they were completely alone back then in predicting, for the post-X “Millennial Generation” (a label they coined), a decline in youth crime and risk taking and an increase in youth civic engagement that would first become apparent around the year 2000. Guess what? For the last ten years, everyone has been noticing exactly these trends among teens and 20somethings.

Howe and Strauss also made extensive predictions, based on generational aging, on how America’s entire social mood would likely change, in dramatic fashion, during our current 2000-2010 decade. To quote Doug’s prescient 1997 article, which was reprinted in Outside the Box late last year…

“… an excellent case can be made the U.S. is approaching another time of secular crisis, a Fourth Turning, with an expected due date of 2005 – seven years from now – plus or minus a few years in either direction.

“The Stamp Acts catalyzed the American Revolution, the election of Lincoln catalyzed the Civil War, the Crash of ‘29 catalyzed the Depression/WW II era. What might precipitate the elements now floating in solution? The answer is practically any random event that’s sufficiently traumatic. Any of the theses of current disaster/action novels and movies will do nicely. Perhaps the accidental or intentional release of a super plague vector. The crashing of an airliner into the Capitol during a joint session. An all-out assault on the IRS computers by an armed group – or perhaps the computers just melting down due to the Year 2000 Problem. Perhaps a financial disaster that cascades into the Greater Depression. In any of these, or a hundred other scenarios, the federal government would almost certainly act precipitously and with a heavy hand, which would bring on a whole other set of consequences.

“There’s no way of telling where the Crisis will lead, or how it will end. That’s going to depend not only on exactly who’s in control, but what they do, who they’re up against, and a hundred other variables we can’t even anticipate.

“One thing that seems certain is that real crisis brings out strong leadership. Because of its age and size, it will come from the Boomer generation, and it will be in the mold of Roosevelt or Lincoln – both very dangerous precedents. The boomers in elderhood will be dogmatic, harsh, puritanical, and quite willing to burn down the barn in order to destroy whatever rats they see. Admix that attitude to a time resembling the Revolution, the Civil War, or WW II, overlain with today’s ethnic strife, urbanization, financial overextension, and powerful, compact new weaponry in the hands of foreign fanatics out to teach the Great Satan a lesson and it’s a real witch’s brew.”

As eye-opening as Doug’s predictions were, they brought us only to the onset of the current crisis. Consequently, we thought it both timely and important to check back with the source of much of the research he relied on. And so it was that I spent several hours talking with Neil Howe, co-author of the seminal work on generational cycles, The Fourth Turning, and, just recently, the subject of the DVD “The Winter of History.” Howe is not just an historian, but also a Washington DC-based economist and demographer. While our conversation covered a great many topics, the overriding focus was on how things are likely to unfold from here.

Many bullish readers won’t be thrilled to hear Howe’s latest findings about the future, but given his predictive track record, dismissing them out of hand could be a costly mistake.

The summary outlook, according to Howe, is that we are in the very early stages of a 20-year period of economic and institutional upheaval – an era denominated by a crisis during which we’ll likely witness the tearing down and reconstruction of many aspects of society as we know it.

As individuals, understanding Howe’s views and taking some reasonable precautions makes a lot of sense. As investors, those views also have the potential to make us a lot of money.

Following is my high-level recap of my long conversation with Neil Howe, along with some general thoughts on the investment implications of a 20-year bear market.

Remember the Sixties?

If you’re old enough — or possess even a rudimentary sense of history — think back to the 1950s, with roller-skating waitresses, crew cuts, and nuclear families of the sort represented by the iconic Leave it to Beaver. Fathers worked, while many mothers stayed home. Life had a certain predictable quality and, as far as anyone knew, would continue along the same lines for time immemorial.

But then something happened… the 1960s. Literally no one saw it coming. It was as if someone had flipped a switch that electrified America and, quickly, the world. Most everything changed, and a society accustomed to conformity was blown away with a fierce individualism expressed with long hair, sex, drugs, and rock and roll, topped off with civil disobedience and bloody riots in the streets.

What happened?

According to Neil Howe, in the mid-1960s, generational change pushed society around a dramatic corner as idealistic, individualistic young Baby Boomers (born 1943 to 1960) rebelled against the midlife leadership of their G.I. Generation parents (born 1901 to 1924).

These periods of transitions are part of a larger cyclical pattern made up of four distinct eras, or “Turnings,” each lasting approximately 20 years. It can be helpful to think of the four turnings as you might think of the four seasons, repeating predictably in their own natural rhythm. A full cycle of turnings takes place over a period of about 80 to 90 years — roughly the span of a long human life. A new turning begins as a new youth generation comes of age, bringing a new social ethic that compensates for the excesses of the midlife generation then in power.

While we don’t have the space here to go into the full details of Howe’s research, it’s important to the topic at hand that we quickly recap the Four Turnings.

The First Turning is referred to by Howe as a High. As this follows a period of crisis, one of the hallmarks of a First Turning is a heightened sense of community and collective optimism, driven in part by the fact that the society has just come through a difficult and challenging time. Consequently, during First Turnings, societal institutions tend to be strong while individualism is weak. The post-World War II “High” of the mid-1940s through early ‘60s is the most recent example of a First Turning.

The Second Turning, called an Awakening, typically starts out feeling like the high tide of a High, with signs of progress and prosperity everywhere. But just as everything seems to be going along swimmingly, large swaths of society begin to chaff under the social conformity of the High, beginning to gravitate to more individualistic pursuits and demanding that their personal interests come first. You may recognize the “Consciousness Revolution” of the mid-1960s through early 1980s, correctly, as the Second Turning.

Next up, the Third Turning, which Howe calls an Unraveling, is much the opposite of a High. To wit, individualism dominates, while institutions are increasingly weak and discredited. Quoting Howe on the Unraveling…

“This is a time when social authority feels inconsequential, the culture feels exhausted, and people feel bewildered by the number of options available to them. It is a time of celebrity circuses and a tremendous amount of freedom and creativity in our personal lives, but very little sense of public purpose.

“The most recent Third Turning began in the mid-‘80s with Morning in America, and continued through the ‘90s. Previous periods of Unraveling in American history were also decades of cynicism and bad manners. Think of the 1920s, the 1850s, the 1760s. And history teaches us that the Third Turnings inevitably end in Fourth Turnings.”

Finally, there is the Fourth Turning, called a Crisis. The recent Third Turning appears to be winding down, and we are currently on the cusp of a Fourth Turning. This is a time of great turmoil, when society’s basic institutions are torn down and rebuilt, and seemingly insurmountable problems are addressed. During Fourth Turnings, America engages in a struggle for its very survival and redefines its identity as a nation. Large wars are often a part of this process. The American Revolution, Civil War, Great Depression, and World War II were all features of past Fourth Turnings.

In sum, Howe’s research has shown that, with remarkable predictability, history is not a straight line extending toward a better and brighter (or increasingly awful) future, but rather a repeating cycle of the four distinct social eras. These four turnings have recurred with remarkable consistency throughout Anglo-American history, as Neil Howe outlines at length in Generations and The Fourth Turning. It is therefore no accident that America has experienced great cataclysms or “Crises” about every 80 years. Travel back eighty years from Pearl Harbor Day, and you land in the middle of the Civil War. Eighty years before that takes you to the Revolutionary War. If the rhythms of history hold, America is now poised to enter another Fourth Turning.

Bad News, Potentially Good News

You don’t need me to tell you that the United States and in fact the world are now facing a plethora of intractable problems. The world’s former powerhouse economy, the U.S., is now the world’s largest debtor nation – and by a wide margin. The nation has trillions in unpayable liabilities coming due on Social Security and Medicare, to name just two of many broken government programs weighing on the country. And our much vaunted democracy is increasingly dysfunctional – rotten to the core, truth be known – thanks largely to entrenched special interests and a voting public clamoring for their own piece of the pie, while trying to hand the bill off to somebody else.

Meanwhile, the economy – despite rigorous jawboning by the government and its many friends in the large banking institutions — is in serious trouble, with the housing market buffeted by tsunami-like waves of defaults, foreclosures, overvaluations, historic levels of personal debt, and tight credit that has left the U.S. government as the sole lender in many markets.

Bernanke and his ilk may see green shoots, but what they’re really seeing is the deep, green sea rising up once again to bury the economy. That’s the bad news.

The potentially good news, if you credit Howe’s research, is that the Crisis we’re now entering will change pretty much everything. While this change will entail a great deal of pain and a reduced standard of living for a large number of people, by the time the Crisis subsides, society will have pretty much remade itself in ways that no one can predict at this point.

Put another way, today’s intractable problems will be solved… one way or another.

What’s Next

When discussing what’s likely to follow next, Neil Howe turns to his generational profiles and points out that the rising societal power today belongs to the generation he calls the Millennials, individuals born between 1982 and 2004. They are a “Hero” generation, just like the G.I. Generation that coped so well with the turmoil of the Great Depression and World War II — the last Fourth Turning. Coddled as children, the G.I.s were ultimately called upon to help society through a dark and dangerous period and rose to the occasion. Again, quoting Howe on the Millennials…

“These are today’s young people, who are just beginning to be well known to most Americans. They fill K-12 schools, colleges, graduate schools, and have recently begun entering the workplace. We associate them with dramatic improvements in youth behaviors, which are often underreported by the media. Since Millennials have come along, we’ve seen huge declines in violent crime, teen pregnancy, and the most damaging forms of drug abuse, as well as higher rates of community service and volunteering. This is a generation that reminds us in many respects of the young G.I.s nearly a century ago, back when they were the first boy scouts and girl scouts between 1910 and 1920.”

Unlike the Baby Boomers, who are largely individualistic and anti-establishment, the Millennials are good team players. We hear a lot these days about working together for a common cause, volunteerism, and the need for stronger government institutions, largely because these are the new priorities of the Millennial Generation.

As you may recall, out of the devastation of World War II, a spate of transnational political and economic institutions were born, including the United Nations, the World Bank, the World Health Organization, and the International Monetary Fund. By the time the current Fourth Turning is over, expect more of the same — but probably even bigger and more ambitious.

What Does This Mean to You?

Most importantly, if Howe is right, this crisis is far from over. In fact, when I asked him where we are today on a scale from 1 to 10 — with 10 representing as bad as the crisis will get — he replied that we are at either 2 or 3. In other words, the worst is very much yet to come. And, per above, he expects this period of turmoil to take 20 years to play out. Thus, if nothing else, you may want to continue approaching matters of personal finance cautiously.

Secondly, if you’re the type of individual that tends to get steamed up by larger and more intrusive government programs, you may want to take a few deep breaths and resolve yourself to the fact that this phenomenon is likely to get far worse before we see a return to celebration of individual rights. (And the cycle shows that we will see such a return — about 40 to 50 years from now, when the next Second Turning comes around.)

If it is any consolation, the Millennial Generation places a great deal of weight on teamwork and the notion of doing things “smart.” That doesn’t mean, of course, that the various programs that are kicked off in an attempt to fix the many problems now confronting society will in fact turn out to be technically smart. But they will almost certainly be better thought out than some of the numbskull initiatives we’ve seen over the last 20 years.

You can also take some comfort in the fact that Millennials are builders, not destroyers. By contrast, the individualistic Boomers that dominate today’s aging political class are world-class dissenters, radio talk show aficionados always ready to scrap it out for their beliefs. Millennials want to skip the philosophical debate and get straight to fixing things.

Other insights about Fourth Turning periods gained from my conversation with Neil Howe…

• Government grows powerful, and sweeping new legislation is enacted. The old 1990s rule was: just compete and stay off the state’s radar screen. The new 2010s rule will be: better have a presence in Washington so you’re not dealt out of the “new” new deal.  One political party tends to dominate. The Democrats under FDR during the last Fourth Turning offer a good example. While Neil Howe doesn’t think it will necessarily be the Democrats this time around, they are certainly in the pole position at this point.

• While public history speeds up, personal life slows down. Families will spend more time together, like in the old Frank Capra movies. Ever more households will be multi-generational, a trend now spurred by Boomers with large, empty McMansions and Millennials without jobs. There will be a blanding of the pop culture, with the entertainment of the young (put Miley Cyrus or “High School Musical” on fast forward) increasingly regarded as tamer than the entertainment of the old.

• Innovation tends to stagnate, while a few new technologies will be chosen to be adopted on a large scale. We will see the equivalent of canals or railroads or interstates being built across America. To borrow from Carlotta Perez’ four-stage description of technological revolutions, we are moving from the “innovation” to the “implementation” stage.

• New laws and regulations will do less to referee a free market and more to pursue one or another national priority. They will increasingly favor the large producer over the retail buyer, investment over consumption, planning over risk, debt over equity. Businesses will hustle to reposition themselves. Anti-trust will weaken.

• The authority and obligations of community will strengthen at all levels, from local to national and possibly beyond (if our alliances prove durable). Personal reputation and membership will matter more. A “new localism” will reshape town and urban planning. A global slide toward national or regional protectionism will loom as a real danger.

• It is too early to tell whether the crisis will ultimately be inflationary or deflationary, though we at Casey Research come down on the side of inflation for the simple reason that the government possesses the means to inflate. Due to the gold standard, that was not the case early in the Great Depression.

• In the past, Fourth Turning periods have always resulted in the nation redefining who we are in some essential way. That was certainly the case during the American Revolution, when we transitioned from a British colony into a collection of independent states — and the Civil War, when those states were hammered into a single nation. And, again, after World War II, when the U.S. went from being a relatively isolated nation to a global empire. A wild card, for instance a terrorist nuke going off in a city anywhere on the planet, could similarly take the country, and the world, into unforeseeable new directions.

• Baby Boomers will continue to be respected for their cultural achievements (it’s not a fluke of history that Boomer music and other entertainments are still wildly popular among the young), but will be increasingly ignored in the political debate. The term “senior citizen,” already in decline, will disappear entirely. And if push comes to shove, Boomer’s financial interests – including Social Security – will be subjugated “for the greater good.”

• There will be a growing push to rebuild the middle class. The wealthy and the impoverished alike will both come under pressure thanks to new pro-middle class initiatives. If you are a high-income earner, it’s a certainty your taxes are going up, and likely by a lot. If you want to make a fortune, don’t pursue the niche or the “long tail.”  Invent the next big brand that will appeal to Everyman.

Don’t Worry, Be Happy

That is, at best, a sketch of my long conversation with Neil Howe and doesn’t do justice to his research. If nothing else, however, I hope I’ve succeeded in giving you at least some sense of the man and his unique research and encouraged you to think outside the box about the nature of today’s crisis.

A couple of final observations.

First, Neil Howe is not a negative person, nor a professional doomsayer. Rather, he is a social scientist and historian with decades of experience in the social sciences. As you speak to him, you get the sense that he doesn’t view the world through any particular philosophical bias, but rather is simply reporting what his research is telling him about the current players on the global stage, and which act we are currently in.

Secondly, speaking as a Baby Boomer and someone with a lifelong distrust of government and its meddling institutions, talking to Neil left me feeling oddly relaxed — letting go, if you will, of some of the frustration that has been building within me as I watch the nanny state grow more and more bloated.

That is not to say we won’t continue to speak out against government waste and prolificacy. We will. But it seems increasingly clear that we’re now caught up in a powerful trend toward bigger, not smaller, societal institutions — and that these institutions will, over the period ahead, change the world as we know it.

Of course, being active investors, at the same time we raise our voices in protest, we’ll deal with the reality of the situation by strategically positioning our portfolios to profit from the coming changes.

And so, like the Rockefellers and J.P. Morgan during the Great Depression, we’ll make the trend — to matter how negative — our friend. You may want to consider doing so yourself.

Making the trend your friend is more important than ever, if your assets are to make it through the Fourth Turning intact. The Casey Report discovers and analyzes budding economic trends and turns them into hands-on, actionable recommendations for its subscribers. Read the latest report from Casey Chief Economist Bud Conrad about our favorite investment of 2009… a play on an all but inevitable economic development. Click here to read more.

Regards,
David Galland

July 13, 2009

A 20-Year Bear Market? was originally featured on Whiskey and Gunpowder

We believe on fundamentals, technicals, and common sense.

We even believe all this in the face of the recent gyrations in the market.

In May silver shot up dramatically, so why is it falling dismally in June?  Beats me, Babes, it truly does.  By every standard I can devise silver is still the investment of choice:

• For sixteen years straight mining has not kept up with demand.

• Almost all the gold ever mined is still in existence, barring bits that were hidden from various totalitarian governments and forgotten, or lost, or sunk beneath the briny sea transporting treasure from the New World to Spain.

• Silver is consumed, other than for jewelry and tableware; again, supply is unequal to demand.

• Silver has multitudinous industrial uses, even now that the vast amount once used for photographic film has been reduced to very little.

• Silver has been running less than half of the least classic ratio with gold and slightly over four times the highest one!  That varies, historically, between 16:1 and 30:1.  At recent levels of 65:1 silver is so wildly undervalued that it is almost insanity not to buy it.

• Only recently has silver become available at spot or close to it; last year those who had wouldn’t sell.

• Mints can’t keep up with demand.

• To really ice the cake, silver is down well over ten per cent. below last month’s highs.

So…why did it fall again today?  Quite frankly, I have no idea, and I don’t really care.  I like $13.85 silver a lot better than I did $15.50 silver last month so long as I’m purchasing, as I expect to be for some years to come!  I chortled happily today when I bought over eighty ounces at $10.85 or $11.32, depending upon whether the weight was in Troy or Avoirdupois.  Either way, I did well.  I picked up another forty-odd ounces for $500.

Those who are familiar with my “TOIS” (Traynham’s Own Investment System,” pronounced “toys,” because that’s what I buy) know that I read the market via complex technical, psychological, and analytical market runes (otherwise known as Craig’s List and e-Bay.)  The torrent of silver available through such markets has reached flood level as 20% joblessness (no matter what the government says) and a minimum of 6% inflation (again, no matter what Obama says) devastate the land.

The short-sighted are turning loose of family treasures and luxury items rather than tightening their belts, and they will regret it bitterly sometime in the next five years.

Never before has the market been so advantageous for the buyer of used vehicles, fine china and other luxury goods, farm machinery, and livestock.  As I noted below yesterday’s article on Morning Whiskey, we just bought a pair of very fine horses for a quarter of what they would have cost last year.  We want a diesel truck (for reasons covered in past articles), and made a short list quickly and easily of two dozen that would have done splendidly, the most expensive of which was $2,000.  MDC (My Darling Charles) chose a Big Bubba that has been in use as a repo truck, meaning it comes with what is virtually a small crane and heavy chains worth a quarter of the price we’re paying.

This country is in big trouble economically from crashing stock and real estate prices.  We expect the bond market and commercial real estate to totter next.  Taxes are rising, income is falling, hours are being cut, the USA is averaging 625,000 lost jobs a month, and Congress intends to tax our cattle for emitting methane.  BRIC is maneuvering to replace the dollar as the standard currency.  Nobody more significant than Sri Lanka is discussing a gold standard.  The far left is dismembering the carcass of business and distributing the bleeding hunks to favored voter blocks.

MDC and I spent our usual luxurious three hours sitting on the terrace watching the sun go down over the lake and laughing at the antics of the animals.  We came up with one slight possibility of an explanation.  Remember the Hunt Brothers?  Back in the late Seventies they almost cornered the market in silver, and after that splendid idea failed went back to running one of the nation’s biggest trucking companies.  It could just be that the increasing costs of trucking and the possibilities of a breakout in silver made surviving Hunts think May was a good time to turn loose of some of their glittering hoard.  A look at volumn for the year might be enlightening, along with speculation about whence came genuine Ag, although it may be the rise was promulgated through mining stocks.  I still say it doesn’t matter, buy it when the price is advantageous.

I expect the day to come when I have to admit that I erred in not paying what silver cost when I had the chance at current levels.  That has happened to far better than I.  Silver is particularly vulnerable to this error because there is usually a limited amount of the physical metal to be had at any time.  Don’t say that you weren’t warned that my gleeful hand-rubbing today over buying at twenty and thirty per cent. under spot won’t give way to mourning that I didn’t buy much more even though it was $15-20/ounce.

I miss the good old days of the Eighties when I hunted for cyclicals and charted happily every day, but I think we have a better chance to make really big gains now than have been possible for ordinary, sensible people since the Great Depression.  I love reading the market suggestions the big guns of Agora Financial offer us regularly, but day in and day out you can protect yourself and your future through small, common sense purchases.  Food, fuel, trade goods, sterling you can hold in your hand, ammunition (if you can find it!), tobacco, alcohol, and soap…those will be the daily hard money in the future I see coming.

Why is silver falling?  Who cares!  Just go buy all you can get your hands on.

Warm regards and happy shopping,
Linda Brady Traynham

June, 30, 2009

P.S.: Afterthought.  Writing is how I pull out the conclusions my mind has reached, and even I didn’t know until I typed the words above that my inner Cassandra has started to say, “Stop looking for bottoms and bargains.  Pay what it costs to accumulate while the opportunities are there.”  Cassandra is right:  it is very satisfying to purchase goods at 20% below market, unless six months from now you look at spot and wail, “I could have bought thousands of ounces at the going rate and would have a 35% ‘profit’ on it right now.”

Many hours later:  I went and practiced what I preached and contracted for a thousand ounces of sterling, my idea of Really Big Money (RBM, as the Mogambu Guru would say.)  Pain, shame, disgrace, some of it I paid as much as $15/ounce for.  Unlike the Stock Market, e-Bay is functioning at two a.m.

My thrifty instincts are utterly outraged and I have probably lost all claim to being one of the world’s greatest shoppers, but Cassandra went back to sleep after muttering, “Good, smart girl.  Keep doing it until you run out of cash allocated to spend on metal.”

Silver the Best Buy Among Depression Bargains was originally featured on Whiskey and Gunpowder

This time they’re making war on another weed, one that has been a favorite in America since before the time of Pocahontas.  The Nicotine Nazis are on the rampage and propose to turn tobacco over to the FDA to “regulate.”  The FDA intends to start by mandating the removal of all additives, including menthol, and my girlish laughter is going to dissipate as the smoke does.

Since the sound byte medical types and MSM are convinced that smoking is worse than sex was to Victorians most citizens will doubtless think prohibiting tobacco (the real proposal; regulation by the FDA is merely the first step) is a fine solution that will lower health-care-related costs even though the jihad of the last thirty years has had no effect.  The usual Liberal logic was applied:  you may not smoke, but all diseases are tobacco-caused so either you are ill because of “second hand smoke” or you took a puff behind the woodshed when you were thirteen and forty years later you got cancer because of it.   Smoking has become the easy, automatic answer for cause of death and is probably implicated in cases of suicide and car crashes.

This isn’t about making Linda snarl at the world; we’re interested in the economic effects–which will be catastrophic.  Ten years ago I spent $72/month on my two-pack-a-day habit.  Taxes have been piled on to the point that the carton of cigarettes that cost nine dollars then is well over fifty now.  Think of that as fifty buck lattes or fifty buck movie tickets.

“Sin” taxes are a favorite for revenue and those of us who enjoy a little tot of Irish or a glass or two of (heart healthy) red wine are subject to truly sinful and prejudicial new taxes–at least one raised recently by 537% by Mr. “I’m not going to raise your taxes unless you make a quarter of a million a year.”   We got the usual equal treatment before the law:  all smokers and drinkers are penalized.

Has anyone consulted the Carolinas to see what effect knocking R J Reynolds off the Big Board is going to have?

What about the shareholders there and of P. Lorillard and others?  What about my solicitous neighbors who voted a ten dollar a carton tax last year to procure more “social services” before Mr. Obama added his ten dollar a carton tax to already outrageously punitive fees?  The loss in tax revenue will be enormous and governments don’t understand about reducing spending when income falls.  Adjusted for inflation something like eighty per cent. of our cherished smokes are pure tax revenue, and guess what?  Non-smokers are going to have to “sacrifice” to make up for that loss.

A black market will surely spring up, which may account for the BATF ruling that all purchases of fifty cartons or more must be reported to them!  Even if all taxes are paid.  Seriously.  You have to fill out a form including your license plate number and full personal data.

Travel and tourism…a higher percentage of Europeans and those from the Middle East smoke and I know what my rule is:  if I can’t smoke, I don’t go.  How appreciative are New York, Las Vegas, and Miami going to be when the French and Germans say “non” and “nein?”  Who cares how good the exchange rate is if a monsieur can’t even buy a pack of Galoises or an American brand or smoke within twenty-five feet of a doorway?   Will there be revenuers, so to speak, wandering around the country hunting tobacco patches and sniffing the air?  Why not?  There are some of those jobs Mr. Obama claims he is going to create.  Will foreigners get special dispensations or will customs confiscate their cigarettes for failing to meet US standards?

Attempts to legislate morality and lifestyles always fail and always have nasty consequences.  If there hadn’t been prohibition Joe Kennedy would never have made a fortune running rum and we would have been spared Teddy in the Senate all these years.  Why not ban sugar, which is far worse for you than fat, and ban the substitutes too?  (Because the Stevia producers do not have the lobbies that sugar, Equal, and Splenda do.)  Put enough social engineers to work and we could wind up with everyone in the country loathing everyone else and set new records for assault and battery.

Most of you probably don’t smoke and don’t see what the fuss is about; you even believe my health will improve if I am treated like a toddler.  (Will I live longer if I stop smoking?  No, but it will seem that way.  Mostly, it is my choice, not the government’s.)  My bleeding ox may not move you, but how do you feel about the proposal you be taxed for every mile you drive?  I don’t drive a hundred miles a month, while lots of you drive several thousand.  Will you like having your car fitted with a device that records your mileage (at your own expense) and allows the government to track your every move?  They don’t intend to lower the incredible taxes on gasoline, either.  It will be argued that you deserve it because you are using more than your fair share of the gasoline and doing more than your fair share of wearing out the roads.

You know how it goes, people:  when you don’t protest when it happens to us, they’ll come after your butter, cheese, salt, red meat, Cokes, cell ‘phones, and roofs that are any color other than white.  In times past coffee, tea, and chocolate have all been taxed and chances are that most of you regard one of the three as an invigorating “must have.”  They look like prime targets for revenue-hungry governments once the evil weed is outlawed.

Laissez faire, people, laissez faire.  Let’s all take responsibility for our own choices and pay for our own vices and stop regulating and taxing others for theirs.

Let us hope that wiser–or more rapacious–heads prevail in the latest campaign of the war against tobacco.

Your Fuming,
Linda Brady Traynham

June 10, 2009

P.S.: Now to business.  You could call your broker this morning and sell tobacco short before it occurs to a lot of people that the proposed policy would destroy another large industry and a major source of income.  Even though I expect a fall in tobacco stocks I’m more inclined to think we should hold off until we see what sort of support Dr./Senator C can garner.  There could be some good short-hold bargains to be picked up but your timing will need to be impeccable–and keep a firm eye on your “greed” gene.  Maybe scoop up a handful when the gloom is deepest but promise yourself faithfully that you’ll dump it when you have a modest profit.

I’d have to look at current prices and what tobacco stocks have done for at least the last year, but I’d be feeling pretty antsy when I had a twenty-five per cent. profit, and I’d begin charting volumn and price daily when I was ten per cent. up.  By the time a stock had recovered half it had lost it would take a squad of Marines to keep me from selling.  Nuthin’ wrong with a quick little ten to fifteen per cent., you know, and a lot right about it.

As volatile as the market has been you can lose, get lucky, or make your decisions ahead of time.   I have never lost serious money by selling too soon; I’ve lost it by not having faith in my judgement and buying or by not paying attention and missing a major sell signal.

How about a quick identity check?  I’m a trader, the spiritual descendent of robber barons, and believe in hoisting the Jolly Roger, a quick capture, putting a prize crew on board, and on to the next opportunity.  How many of you think in terms of “investing” “for the long term?”  My bet is that most of you are traders who believe in stashing spare cash in metal or you wouldn’t be here.

Taxing Tobacco was originally featured on Whiskey and Gunpowder

What are predictable results of government ramming socialized medicine down our throats?  We can’t stop the programs, so how can we make money from the ineluctable outcome?  A few ideas spring to mind immediately:

1. Has it dawned on anyone in Washington that Socialized medicine just might have some slight effect on insurance companies?  It might be time for us to consider shorting a few viciously…or is that still illegal?!

The health insurance rack…ah, business…is one of the largest in America.  The law as proposed will make it illegal to have private insurance to supplement the government’s “single payer” plan.  A major portion of the GDP will be destroyed in that area alone.  What will happen to those who currently underwrite supplements to Medicare?

No one can prognosticate how many irrational requirements, forbidden activities, and finable offenses will come out of the final legislation, but we can certainly conclude that this shake up and shake down is going to be off the Richter Scale in terms of lost jobs and destroyed capital.  When the government is the HMO there is no place for a private HMO.

2. The proposed law also makes it illegal for doctors to provide services outside of the system and it will determine what doctors and hospitals are paid.  This is certain to lead to staff shortages, probably more quickly than we are anticipating.

A. How many older doctors will retire rather than submit?  Why should they work just as hard for a great deal less money?  Why should they tolerate having their medical judgment overridden by a bunch of penny-pinching bureaucrats?  “First, do no harm” also prohibits doing nothing when treatment is indicated clearly.

B. How many physicians are already considering retiring from the practice of medicine because of the proposed ukases which would require them, under penalty of law, to perform abortions on demand.

C. Any young student with the brains to make it through medical school will tend to decide quickly that it would be far more sensible, faster, and lucrative to become a dentist or a veterinarian.  Any good vet makes at least $100K, but socialized doctors don’t.  This isn’t guesswork; it is the experience in Canada and England.  A quick perusal of the literature reveals also that it is best not to become ill after June and that a dog can get an MRI the same week but people wait months, if they get them at all.

3. What effect will this have on the cost of medical and nursing schools?  Silly question; tuition will go up because it costs the same amount to offer instruction and classrooms whether they are full or half full.  We can prognosticate that less qualified applicants will be admitted because fewer will apply.  Corners will be cut wherever possible.  Fewer courses will be offered.  Why train in procedures likely to be forbidden?  Standards will be lowered.  It may even become a great deal easier to pass the exams to be able to write “M.D.” after one’s name.

4. What is to be done with the clerks in all doctors’ offices who do nothing except handle insurance paperwork–and keep their doctors up to date on how to write up bills and lab requests to obtain the greatest return from insurance companies?  Some of them may find jobs in the new bureaucracy, but one putative benefit of socialized medicine is that less paperwork will be needed to provide better records.  Good insurance clerks are paid well, and deservedly so, for theirs is specialized work.   We can suppose that those who train typists to transpose doctor’s recorded notes may find less business (knocking out their schools and a good at home source of income for quite a few), because a pretty good guess is that over-scheduled, under-paid doctors aren’t going to generate the sort of records we are accustomed to now.

5. The AMA and insurance companies have enormous lobbies, which makes one wonder why there isn’t any outcry from those areas.  That is really a very interesting point upon which to speculate.  What does the AMA expect to get out of this that is worth the price of tolerating bureaucrats to set fees and determine procedures? Do they think that going along will prevent even more Draconian cuts and restrictions, or can someone in the Bar today come up with a better answer to “Cui bono?”

6. Pharmaceutical companies spend lots of money in Washington; could it be that they do not expect the prices of their products to be cut as proponents of socialized medicine insist is one way costs will be controlled?  Perhaps a lessening of the restrictions that make developing a new drug cost billions has been tendered?  Again, what’s in it for Merck and Roche and Lilly not to scream their heads off? A good prediction is that only generics will be allowed to be prescribed, which is bad news for those of us for whom Synthroid is not an adequate substitute for Armour Thyroid, and a very nasty lump for Armour, which gets $90 from me, alone, every time I fill my prescription, instead of three or four bucks.  What is the point of developing proprietary drugs if the cost cannot be recouped many times over?

7. We old-timers are being told we will simply have to learn to live with our aches and pains and that services will be cut for us in order to care for the younger population better.  Doesn’t it make you feel all warm and fuzzy to know that you may not get a life-saving procedure because it “costs too much at your time of life and the money will be better spent on millions of lawbreakers granted amnesty and citizenship, instead?”  Already there are services to help us find superior medical and dental care at deeply reduced prices in India, for example.  However, if/when “Cap and Trade” is pushed through, what is that going to do to the airline industry?  We may well end up with no viable way to obtain adequate health care at any price short of suborning our private physicians.  I joked with mine when I saw him for routine blood work a couple of months ago that between the coming depression and socialized medicine we might end up skulking to meet in an alley at midnight, me with a chicken in my hand.  My brilliant young physician, with enormous student loans, looked grim, and said, “I’ll take it!”  Back in The Great Depression a chicken was considered a good fee, by the way.

8. Where will peripheral specialties come into all of this?  Lasik surgery, for example.  Will such surgeons be exempted, or will they be driven out of business because glasses were good enough for Benjamin Franklin?

“Is there a lawyer in the house?”  It will, one can only suppose, be forbidden for medical personnel to assist in times of crisis, accident, or disaster since the law as drafted forbids practicing outside of the system.  Few do anyway these days because of the danger of lawsuits.

If anyone here will admit to being an attorney, please take a shot at explaining the Constitutional justification for government controlled medicine, since it obviously isn’t going “to promote the general welfare.”  While you’re at it, explain how anyone can justify making it a crime for a duly trained and licensed doctor to treat patients who seek his care.

For preliminary actions…just off hand, I would not invest in a chain of dialysis clinics or expect MRI apparatus to sell as well.   We should probably be leery of many pharmaceutical companies.  On an individual level, it might even be a good idea to go get heart by-pass surgery now if you expect to need it in the next few years, although there are better choices.

So…I’ll raise my glass of Lambrusco (full of healthful substances and a modest jolt of alcohol), and look forward to hearing your views on how to profit from what is coming our way.

Regards,
Linda Brady Traynham

May 5, 2009

What You Can Expect from Socialized Medicine was originally featured on Whiskey and Gunpowder