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Auguries — Inertia Creeps

September 16, 2011

By Kevin Michael Grace

Three years after the bankruptcy of Lehman Brothers and the beginning of the global economic crisis, it is remarkable how little is different. Many of our world leaders have changed, but they get their marching orders from the same bankers and economists, with the result that there is a continuity in their policies—nominal interest rates, stimulus direct and indirect, a vast increase in the money supply, a vast accretion of debt.

Despite this intervention, the recovery has stubbornly refused to appear, and unemployment remains stubbornly high. This is regrettable, according to the bankers and economists, but there was no alternative to their policies, as the consequences of their failure to act would have been unthinkable. Well, they would say that, wouldn’t they? Even so, one detects a note of dread in their recent pronouncements.

“You have this terribly damaging political dysfunction here and in Europe that leaves the world wondering whether the political system has the capacity to do the right thing,” US Treasury Secretary Timothy Geithner told a CNBC conference Wednesday. “That is very damaging to confidence.” Given that the world political system has done nothing but continue to double down on what Geithner considers the right thing for the last three years, one wonders what he means. Certainly, however, the continuing economic malaise has been very damaging to confidence in Barack Obama.

So much so that the Democrats lost a House seat in New York City Tuesday, an event about as common as an appearance of Halley’s Comet. Whistling past the graveyard, Democratic National Committee Chairwoman Debbie Wasserman Schultz responded, “It’s a very difficult district for Democrats.” James Carville was having none of that. He told CNN Thursday, “Today I was mulling over election results from New York and Nevada while thinking about that very question. What should the White House do now? One word came to mind: Panic.”

Carville laid down the gauntlet: “This is what I would say to President Barack Obama: The time has come to demand a plan of action that requires a complete change from the direction you are headed.”

Trouble is, Obama is not a fox like Carville. He is a hedgehog who knows only one thing—”You like me; you really like me!“—and the empirical truth of that statement is now open to question. So much so that one detects a note of desperation in Obama’s recent declarations. During a Wednesday speech intended to rally support for his jobs bill, Obama cried out, “If you love me, you’ve got to help me pass this bill!” Obama has seemingly become the Dudley Moore (from Bedazzled, first video on the right) of politics, taking adoration as his due, while the American electorate has become the Peter Cook (second video) of audiences, responding, “You fill me with inertia.”

It is a foolish politician who depends on love, for political love doesn’t come free. As the great Machiavelli counseled,

[It] is to be asserted in general of men, that they are ungrateful, fickle, false, cowardly, covetous, and as long as you succeed they are yours entirely; they will offer you their blood, property, life and children…when the need is far distant; but when it approaches they turn against you. And that prince who, relying entirely on their promises, has neglected other precautions, is ruined; because friendships that are obtained by payments, and not by greatness or nobility of mind, may indeed be earned, but they are not secured, and in time of need cannot be relied upon.

In Europe, the sense of creeping inertia has become palpable. Secretary Geithner told the CNBC conference, “There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.” Paraphrasing German Chancellor Angela Merkel, he added, “We are not going to have [another] Lehman Brothers.” To which it is reasonable to respond that if this is self-evident, why then was Geithner forced to say it?

The US acted today to bail out the European banks, but that still leaves Greece, whose default has become a matter of not if but when. The bailout “appears to have helped calm investors’ nerves rattled by worries about European sovereign debt” and accentuated a bad week for precious metals. By press time, gold had fallen to $1,774 and silver to $39.60. Eric Parnell argues that this calm isn’t going to last: “If the Eurozone comes together to bail out Greece, this implies the potential for continued fiscal instability and aggressively easy monetary policy in the months ahead. And if Greece defaults, this has the potential to lead to suddenly sharp currency devaluations along with unanticipated aftershock effects that could motivate investors to shift toward safe havens such as gold. So from a secular perspective, gold should continue to receive support regardless of how the Greece situation plays out.” Eric Sprott believes the same.

Meanwhile, gold stocks’ “worst performance in a decade” continues. At the Globe and Mail, David Berman quantifies the misery: “Analysts at TD Securities…can put some interesting numbers on the trend… Since its last correction nearly two years ago, when the price of gold bottomed out at $1,063 an ounce, gold has risen 79% per cent to its recent high on September 5. But Canadian gold stocks—as measured by the performance of the S&P/TSX gold index…have trailed with a return of 57%.”

The aforementioned Eric Sprott sees evidence this misery is subsiding. Accordingly, “In many of the funds we manage at Sprott, we’ve transitioned out of gold bullion and into gold equities… As long-time investors in this space, we can assure you that the production growth rates will be significantly higher in the junior stocks. They continue to trade at discounted valuations, and we believe they offer the best opportunity to build exposure.”

At Seeking Alpha, Ann McQueen identifies “four hot silver stocks serving investors well.” The three listed on the TSX are Silver Wheaton, Pan American and Silver Standard. On the gold side and from the same source, Devon Shire likes Banro Corp, while Thomas Kelly says that Kimber Resources “is certainly a speculative bet, but the history of the area and the high grades already discovered at Monterde point to good things ahead as exploration drilling continues.”

The Canadian Press notes that Timmins Gold announced a 9% 1Q increase in revenue to $27 million, with net profit increasing to $5.7 million, compared to a 1Q 2010 loss of $1 million and $13.8 million revenue.

Timmins Gold is one of Celine Gaño’s September 14 “small-cap stocks to watch” at the Globe and Mail. Others include Yukon-Nevada Gold and Anaconda Mining.

Finally, Jane Taber of the Globe reports that following a Canadian win over a tiny Polynesian country at the Rugby World Cup, Chauvinist With Portfolio Tony Clement tweeted, “Eat our dust, Tonga.” Oh, by jingo! Mind you don’t set the bar too high, Tony.

3 Responses to “Auguries — Inertia Creeps”

  1. You forgot to mention the “C” word. China continues to roar ahead with economic development. The problem in the Western world is threefold: High expectations of citizens for publicly funded entitlements, corruption through the collusion of Government and Banking, and of course fanatical military spending. When (let’s be frank) the White Man can understand this and admit to it, there might be some resolution to the looming debt crisis that threatens to torpedo the entire Western World.

  2. I appears there is an imminent monetary crisis looming with china soon to be able to buy @ 10 cents on the dollar anything they want. Gold/ silver equities may soften the investor blow but one wonders if what food equities’t aren’t the best commodity to own, especially due to economic/ political fallout / weather and the african peoples tradegy.??

  3. Good information and facts! I have been previously trying to find something like this for some time now. Thanks for the tips!

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