September 22, 2011

By Kevin Michael Grace

The Ben Bernanke’s “Operation Twist” was DOA yesterday, and the market erupted in chaos today. The Dow fell 391.01 (-3.5%) to 10,733.83; the S&P/TSXV fell 105.54 (-6.2%) to 1,598.24; gold fell $63.10 (-3.5%) to $1,745; and silver fell $4.11 (-10.2%) to $36.36.

In response, a shell-shocked Peter Hillyard, ANZ head of metal sales in Europe, told Reuters, “The textbook ideas, the things we follow, the things we believe to be so are being shot to pieces for the moment.” For today, there is apparently only one thing investors believe in. “Everyone says they’re concerned about economies everywhere, but I suppose it’s dollar strength. That’s what I’m putting it down to.” He doesn’t seem convinced, but in a world whether nothing financial makes sense, Hillyard’s explanation is as good as any other.

Foremost among the textbook ideas governing our lives is that globalism induces stability. If this is true, why should anyone give a toss about overweening debt in the birthplace of souvlaki? In the Sydney Morning Herald, an angry Paul Sheehan instructs us to “Feel no sympathy for Greece.” It is a country whose “national sport” is cheating: “The Greek government lied its way into the Economic and Monetary Union in 2001, presenting false data, and ever since Greece has been a cancer in the Eurozone.”

Perhaps so, but so what? “Greece may be far away, it may be a small economy, but it is dragging down the value of your superannuation [pension] because its problems are a drag on the global sharemarket.” Canadian Finance Minister Jim Flaherty agrees: “A global banking crisis will erupt unless Europe properly deals with Greece’s debt problems.”

The Brookings Institution warns of Greece, “What started in the fall of 2009 as a fiscal crisis in a smaller European economy” now threatens “not just to melt down” the Eurozone but also to destroy nothing less than Europe’s “social and political fabric.” The US will do its part to ensure that doesn’t happen, according to Treasury Secretary Timothy Geithner. He explained today that “European countries are using the Washington-based IMF ‘for a transitional role’ because it is a ‘mutual arbiter of the economics of reform both in designing and monitoring the compliance of those things.’”

Would this be anything like the efficient, globalist “reform” that enabled a situation whereby Greece, a country with a piffling GDP of $318 billion, came to threaten the economies of Australia (GDP $1.24 trillion), Canada (GDP $1.57 trillion), the European Union (GDP $16.28 trillion) and the United States ($14.78 trillion)? This wouldn’t have anything to do with the terrible prospect of bankers losing money, would it?

That prospect doesn’t scare Brian Rogers of Fator Securities. “Let the banks blow up, let the equity holders get wiped out and the debt holders take haircuts,” he thunders. “Guess what? The sun will continue to rise. Sensible, solvent players will move in to pick up the pieces and the real business of healing a horribly broken economy can finally begin but not one second before we force real capitalism down the throats of the current crop of pseudo-capitalists running the world.”

Gerald Warner strikes a similar note. “Whatever this La La Land economic charade is, it is certainly not capitalism,” he declares. “On the contrary, we are paying the price of ubiquitous state intrusion into economies. The US subprime crisis was created by government social engineering intruding into the housing market, to the extent that banks were required to accept welfare cheques as mortgage collateral. The manufacture of the Euro was similarly a political initiative.”

The protestations of Messrs Rogers and Warner bring to mind something Robert Conquest once wrote. The pre-eminent historian of the Great Terror reported that he was often assailed by people complaining that the Soviet Union and the Eastern Bloc were not “real communism.” On the contrary, he replied, these countries demonstrated communism as applied by experts.

Capitalism used to mean saving. Garth Turner complains, “Prudent, conservative investors with money in the bank, [or] in a GIC…get 2% when inflation is 3%. Then the government taxes them on the interest. This is wealth confiscation.” True enough, but this is what capitalism means now. After all, who can claim greater expertise in the subject than Professor Doctor the Ben Bernanke?

We have seen these transformations before. “Liberalism” once meant something quite different from what it has meant since the 1950s. As recently as the last decade, we have witnessed “conservatism” subsumed by something once called “neoconservatism,” which was, again, quite different.

Adam Curtis reminds us that another textbook idea governing our lives is “freedom of choice.” And yet, he writes on his BBC blog, “In politics today we have no choice at all. Quite simply There Is No Alternative. That was fine when the system was working well. But since 2008 there has been a rolling economic crisis, and the system increasingly seems unable to rescue itself. You would expect that in response to such a crisis new, alternative ideas would emerge. But this hasn’t happened.”

There is no alternative, Curtis argues, because we are all now disciples of the late economist (and Right-wing hero) Friedrich von Hayek, whose “vision shared a great deal with the ‘scientific’ planners on the Left that he thought were destroying Britain.” According to Curtis, Hayek “turn[ed] Adam Smith’s idea of the Invisible Hand into a cybernetic system of information exchange. He said that all the knowledge of a society is dispersed among millions of people. But each person only knows just a few fragments of the whole, and no one person can know or comprehend all that knowledge. Instead those millions of people are constantly sending ‘abstract signals’ to each other, and out of that comes the ‘pricing system.’ And out of that comes order without central control.”

Hayek called his New World Order Catallaxy: “a self-directing automatic signalling system.” Curtis calls it a “technocratic and almost robotic vision of society.” What the global crisis of “capitalism” (or whatever one chooses to call it) unfolding hourly before our eyes suggests is that Hayek was wrong, that people are not machines, that there is more to life than the market and that no matter the speed of the computers and the number of data points, the future is beyond our knowing.

But of course anyone reading this column is greatly interested in the precious metals markets. An anonymous poll of attendees Tuesday at the annual conference of the London Bullion Market Association predicted a gold price of $2,019 by November 2012. Goldman Sachs says $1,860 by September 2012.

If these calls are correct, this would supply the vaunted “price stability” supposedly necessary for a rebound in junior gold and silver equities. Peter Grandich isn’t holding his breath: “Given the underlying metal prices (taking into account their recent declines), this could be the worst I’ve seen the junior market in years, if not for all-time. There’s not only a buyers strike but an ‘I give up’ air to this decline. If I didn’t know any better, I would think it was a going out of business sale.”

On the other hand, the talk of future takeovers is becoming a roar. At Seeking Alpha, Thomas Kelly notes Kimber Resources’ appointment of an Agnico-Eagle Vice President to its board. “Agnico has been one of the most aggressive buyers of junior gold miners, having most recently acquired Grayd Resources… Th[is] purchase is a virtual blueprint for what might be an eventual bid for Kimber.”

Tara Hassan of National Bank tells Reuters she has “started coverage of Astur Gold, Grayd Resources [too late!], Lydian International and Prodigy Gold.” She explained, “These advanced stage gold exploration companies are poised to move to the development stage soon, making them potential targets.”

In a BNN interview, John Ing, President of Maison Placements Canada, says, “The correction is just about over.” He sees “a lot of catch-ups, particularly among the mid-caps, and of course, the junior exploration [stocks].” Ing holds positions in Barrick Gold, Continental Gold and Aurizon Gold.

At Seeking Alpha, David Urban has kind words for Silver Standard, First Majestic Silver and Endeavour Silver. From the same source, Amine Bouchentouf is “keeping her eye on” Fortuna Silver Mines, Alexco Resources and Great Panther Silver.

And at the National Post, Peter Koven quotes Clarus Securities analyst Nana Sangmuah as downplaying the protests against Semafo’s Kiniero project in Guinea, as that mine “only drives about 10%” of his valuation of the company. “Sangmuah maintained a buy rating on the stock and a target of $14.25 a share” (currently $9.42).

Finally, Canadians have been lately amused by the suggestion that a Parliamentary Secretary may have been lured into a “honeypot” by a Chinese journalist called Shi Rong. With a name like that—say it out loud—she might as well have waved her arms about and shouted, “Danger, Bob Dechert! Danger!” But he got involved nonetheless. Which goes to prove that ancient maxim, “There’s no fool like a middle-aged fool.”