The Room 4/29/08

Written: April 25, 2008

Dear Reader,

What an interesting week!

Having been a single parent for two weeks, with the kids on spring break for the second of those, I have attained a whole new level of appreciation, yes, I think that's the word, for the difficulty associated with holding down the home front.

I'll have some more thoughts on the topic of domestic servitude in a bit, but first I want to turn to this week's even more interesting developments in the gold markets.

The Battle for $900 Gold

With few exceptions, as gold has approached each new psychological price barrier in the unfolding bull market, it has gingerly touched the barrier, fallen back and then traded in a fairly narrow range before decisively taking it out and moving on. Not unlike, perhaps, Napoleon's army, with small skirmishes leading up to a full-scale assault and crushing victory.

The current battle is around the $900 level, a fairly steep retrenchment from the recent highs of $1,011. Some investors, their hopes dashed that $1,000 would be quickly and decisively overrun, are seeing Waterloo in this correction and dropping their gold as they run for cover.

So let's get to the nub of it.

Do we think we are now seeing a reversal in gold's fortunes? That, rather than cheering gold on as it defeats the fiat army and breaks through one whole number barrier after another... we'll now be playing a dirge as gold retreats down through those same whole numbers on its way toward lonely exile as a broken footnote of history?

In a word, no.

I'm not going to go into meticulous detail here, because that sort of coverage is found in our paid letters. But I do want to share some thoughts that may be of some use... if for nothing more than playing them back to me in sarcastic emails several months down the road if we're proven wrong.

A few things to ponder as the battle for $900 gold rages...

  • Current Correction Not Yet Exceptional. Since the current bull market began in earnest in 2001, there have been 9 corrections in excess of 8%. During the three worst pullbacks, gold fell 15.98%, 18.27%, and 27.7%, respectively. And the average of those corrections is 13.6%, so the latest, which touched 13.9% at its worst (so far), is only fractionally worse than average.

    Put another way, for the current pullback to match the sharpest correction to date, a drop of 27.7%, gold would have to fall to about $730. Could it happen, again? Sure, why not?

    And if it does, rest assured that, just as they did when gold moved down by that percentage in May of 2006 - falling from $725 to $567 -- analysts will line up to say that the back of the gold bull has been broken. But if you had listened to the naysayers back then and bailed out at the bottom of that correction, you would have subsequently missed a rebound of close to 100%.

    I mention this to stress that the fits and starts we are currently experiencing are nothing unusual. Quite the opposite, they're the norm for any sustained bull market. In the 1970s' sustained gold bull market, a very similar pattern occurred.

    The bottom line is that if you are going to invest in the resource sector, you need to take a long view. And, I would stress once again, you have to be invested with money that you can afford to lose a substantial portion of and not be overly concerned. Otherwise you'll invariably become shell shocked during periods of volatility and be prone to breaking ranks and selling at the worst possible time.

  • Big Gold Companies Delivering. Newmont just released its first-quarter 2008 financials, the first of the big gold producers to do so. As we have been forecasting, they had record sales of $1.94 billion, realized a record price of $933 per ounce sold, and saw their cash operating margin soar by 119% from the same period last year. Further, net income was up 444% from Q1 last year. And the company's cash operating margin rose to a record $537 million in Q108 over the prior record $419 million earned in the previous quarter.

    Over the next couple of weeks, we'll see a string of similar results from the other major producers, offering a stark contrast to the billions upon billions in losses being suffered by the banks, investment houses, housing industry, airlines, etc.

    So, what happened to Newmont's shares on releasing its financials? They fell, albeit modestly, victim to this week's softening gold price and a dumb remark by the minister of mines of Ghana -- where Newmont has significant projects -- about the need for mining reform in that country. More on that latter topic momentarily.

    The key point is that the increase in the profitability of the gold miners, a prerequisite for the entire gold share complex to get moving, is now materializing.

  • Oil is stubbornly holding on over $100 and food prices are on the rise everywhere. This is simply the most visible evidence of the inflation now gripping the world. As we have discussed in our various publications, there is a very tight correlation between rising oil prices and rising gold prices. While oil prices may moderate at some point - because, again, no market goes straight up or down - the trend is clearly for sustained high prices. Gold is well supported, in our view.

So, What's Going On?

This week Dennis Gartman, who I am told is a fairly widely followed guru, announced he was exiting gold because, as he expressed it, the yellow metal had failed to rally last Friday to the extent he thought it should. But the final straw, according to his letter, was that the following day he saw some TV commercials that called for people to sell their scrap gold.

"What caught our eye over the weekend was a déjà vu moment when watching national television here in the US Saturday morning. We saw a brief show regarding the massive selling of gold jewellery on the part of the public to cash in on gold's sharp rise. The public is selling its old wedding bands; high school and college rings; necklaces; write bands "bling," [sic] et al, and it is doing so aggressively."

Now, he didn't provide any hard data to actually prove anything -- for instance, is the ratio of scrap coming on the market now running at extraordinary levels versus demand. But for the sake of argument, I'll assume he is right and that an extraordinary number of American consumers, strapped for cash thanks to the unfolding financial crisis, will dump their gold.

Will their heirlooms heading for high heat and then back onto the market as bullion overwhelm the bull market? Could that be the cannon barrage that ends the charge of the golden bull? Will that be what it takes for people to turn their back on gold in favor of the bottomless dollar?

I'm sorry, but I just don't see it. What I do see, as mentioned, are the facts on the ground. And those facts include rapidly rising global inflation and more bad news on top of bad news for the financial sector, housing, banks, etc.

In just the last couple of days, there has been hard data showing that -- per the comments of real estate expert Andy Miller, which I have recently related here -- the commercial real estate sector is now heading into serious problems. A report by the Office of Thrift Supervision this week has it that non-performing commercial loans rose by a factor of five last year, and now represent 4.6% of the total.

And the fuse on that very big barrel of powder is still freshly lit. How big? At this writing, there are well over $3 trillion in outstanding commercial real estate loans. So, 4.6% of that is not a small number. But it will be viewed as such when commercial defaults head for 10% or even 20%.

[Ed. Note: Andy also points to a pending bloodbath in the condo market. Providing support to that contention, I had a conversation this week with a top realtor in the small resort town that serves as global headquarters for Casey Research. She told me that of the 112 condos put up for sale in this town last year, only 12 sold.]

Credit card debt is also starting to go south, fast. You don't need me to tell you, but I will anyway, that a reasonably well-maintained fence post could have gotten a credit card between 2000 and 2007. And so it is no surprise that this week we heard that the Target discount stores were writing off over 8% of their outstanding credit card balances. A straw in a tornado, if you ask me.

I could go on, and on, and on... but won't. I will say, however, that faced with these far-from-resolved challenges, there is only one certainty: the government will mount a massive artillery barrage. But instead of grape shot, it will be greenbacks they'll be firing as fast and as furious as they can.

Technical, Shmechnical

More than once in the past I have blown a passing raspberry in the general direction of the technical analysis that Mr. Gartman relies on, in addition to his television programming, for his investment recommendations.

After a long career in this business, I think I have some basis for my general disdain for the art of technical analysis. Note I didn't say "art and science" because as far as I can tell, other than some scientific-sounding parlance, there is nothing scientific to it.

Am I being too hard on technical analysis? Maybe. But I think I have a legitimate gripe when I point out that technical analysis is so subjective that two analysts can look at exactly the same wiggly lines and draw two completely different conclusions... and they can still both be wrong.

And an analyst can, using the same methodology month after month, readily explain with a straight face how it was that the results predicted in the previous month but which came out differently than expected, are actually consistent with their previous forecast.

Consider this paragraph I received from a well-known technical analyst this week (who will go unnamed because I actually like him a lot). Commenting on the U.S. dollar, his service writes...

The USD appears as an ending diagonal triangle pattern, currently in wave 4 of wave (5). The last update indicated that the USD was possibly in a (contracting) triangle but it will likely complete as an (ending diagonal) triangle.

Contracting triangles and ending diagonal triangles are both very corrective patterns. The previous newsletter indicated that a possible triangle was in play and the pattern appears to have evolved into an ending diagonal triangle pattern. We have both possibilities illustrated in the animated chart below. The contracting triangle pattern would suggest the downside is complete, while the ending diagonal triangle indicates that one more wave down is expected to complete the pattern. A move above the green horizontal line would indicate that the contracting triangle is complete. We are expecting one more choppy wave down to the recent lows and this would indicate the ending diagonal pattern is completing. Ending diagonal patterns always end with sharp reversals to where the pattern began, so once it is complete, we can expect a sharp rally above 73.

Hold on a couple of seconds while my head stops spinning. Okay, that's better, I'm back.

Now, could the U.S. dollar, which has been beat mercilessly these many months, make a rally? Of course. It would be extraordinary in the extreme if it did not. But to actually try to manage one's portfolio based on the tangled technical entrails such as those splattered on the page just above is, at least for my money, a non-starter.

Instead, I have to look at the bigger picture. And the bigger picture is a serious financial crisis getting worse, and rising inflation and even trade protectionism now sweeping the world.

You go right ahead and sell your gold. I'm hanging on to mine. And if I'm hanging on to my gold, I'm hanging on to my gold stocks, because that's where the real juice will be.

Maybe not this month, or next... or maybe not until this fall, or even beyond. But when I look at the alternatives and the amount of risk I would have to take to get even a 10% return right now, I am very, very comfortable biding my time, continuing to buy gold and gold share bargains with the expectation that the 100%, 200%, 500% gains down the road will catch me up in a hurry.

Other Views

Casey Research Chief Economist Bud Conrad dropped me an email in response to a call made by one technician to sell gold. His comment...

The reasons provided here are technical, looking at the moving averages, "moving average crossover," etc. To trade this, you need to know when to get out and when to get back in; which requires two timing decisions. I don't know that many famous, rich technical traders. Soros, Rogers, Buffett are all fundamental investors.

My view is still long-term bullish, and I am even more convinced after looking at the actions of the Fed to debase the dollar, and the world food shortages and Peak Oil energy shortage that drove crude to $120.

My $1,200 gold prognosis for the end of the year is intact.

I also spoke to Doug Casey, who is currently working out of an apartment in Buenos Aires. His basic take is that while he is concerned that we'll see more weakness in the gold shares, based on the old adage "Sell in May and go away," he remains entirely bullish on gold and it is where all his loose cash goes.

Clyde Harrison, the creator of the Rogers International Commodities Index and now the Brookshire Raw Materials Fund (www.brookshirerawmaterials.com), and one of the smartest guys in the commodity business, sees most commodities trading in a range for the next few months. The exceptions are copper, which he is a screaming bull on... and rice, which he thinks is a great shorting opportunity.

A Word About Political Risk and Gold Stocks

This week, the Ecuadorian government committed economic suicide on behalf of its struggling population. It did so by passing a six-month moratorium on all exploration and mining development.

As a consequence, as you read this, the technical staffs of the many good companies working in Ecuador are draining their last beers in Quito before climbing onto planes for their new jobs in more mining-friendly corners of the world. Rest assured they will not go unemployed, given the massive shortage of skilled help in the sector. And they won't be returning to Ecuador anytime soon.

This end of mining in Ecuador has cheered the very active NGOs working there, which make their daily bread by interfering with any extractive industry (that is not an exaggeration - we have met with them there).

In fairly short order, however, this draconian move will backfire on the politicians, and the Ecuadorian people, in a big way. For the simple reason that money goes where it is treated best. Certainly not the case in a country where existing contracts can be nullified literally overnight based on nothing more than a light breeze.

Soon, once the last of the disgruntled miners throws up his hands and stomps out, the hallways of the country's ministry of finance will grow silent enough to hear a beetle crawl.

And it will stay quiet until the ranks of the poor, swollen by the unemployed former staffs of the many resource companies previously doing work in the country (and their many dependents), make their voices heard outside of the windows of government. Punctuated, we hope, by the occasional attention-getting rock being delivered through said windows.

At which point the staffs of the NGOs will retie their ponytails, quickly pack their L.L. Bean distressed-washed backpacks (equipped, no doubt, with the latest personal rehydration units) and follow the geologists out of the country, leaving the Ecuadorian people to their own devices.

Unfortunately, this sort of idiocy is not a trait of Ecuadorian politicians alone. The fact is that resource bull markets inevitably lead the locals to put aside any form of rational thought and reach instead for masks and guns. All in the name of the "good of the people," of course.

In recent months, the Democratic Republic of Congo, a misnomer if there ever was one, pushed the reset button on all current mineral concessions. And this week, per above, the Ghanaian minister of mines commented that that formerly steadfast bastion of mining and sound contract law was going to do a rethink with an eye towards grabbing a bigger share of the mining pie.

And it is not just the third world where this sort of thing goes on; how many energy companies (and their investors) were blindsided by the penurious new royalty regime heralded by the brights running Canada's Alberta province? And how many will likewise be affected if the U.S. moves ahead with mining reform, as appears now to be likely?

The fact is that the extractive industry has few friends and many detractors. And so you can get everything right when picking a good company to invest in (Aurelian in Ecuador, for example), but still get cut off at the knees by the politicians.

I mention this because it is near the top of my mind as I write. And because here at Casey Research, we will be redoubling our efforts to stay in even closer touch with the countries where our recommended companies have important projects. (We had been watching Ecuador closely, including receiving and reading regular local reports written in Spanish, but we were still surprised - along with the companies working there - that the Ecuadorian legislature moved so quickly, and in such a negative direction.)

To help us in our efforts, we are in the process of setting up correspondent offices in all of the major mining jurisdictions, establishing an even more highly tuned early-warning network, if you will. This will still be no guarantee that we can't get blindsided, but it certainly can't hurt.

Regrettably, as with pretty much every investment you make, politics looms large. In fact, it now towers above all other inputs by a very wide margin. And on that topic...

Food & Politics

Lately, there has been a tremendous amount of media coverage about rising food prices. In fact, it has risen to "OJ" status. Not as in Orange Juice, the healthful breakfast beverage, but as in the affair of "OJ Simpson," a media-created frenzy designed to assure avid readership by a citizenry suffering from wholesale attention-deficit disorder.

While there are certainly structural issues that are putting pressure on food, and likely will for some time, this week one of my regular correspondents, Steve Henningsen of The Wealth Conservancy, forwarded a link to an excellent article on the food crisis that appeared on mises.org. You can read it here.

http://www.mises.org/story/2952

I find it very interesting to watch the actions being taken by governments in response to the rising food prices. The Indian government, which retains the programming received at the end of a swagger stick while part of the British Raj, announced this week it will be prohibiting certain food exports.

The less hidebound Thai government, by contrast, said this week that they have no intention of stopping the export of rice, but rather are viewing higher prices as a commercial opportunity for their farmers.

Meanwhile, the Canadian government announced that it was going to pay pork producers $50 million to kill their hogs, 150,000 of them. I don't have time to go into the long-term problems caused by this sort of meddling, but I will report the news from a hog farmer friend of ours in the U.S. that, even without subsidies, he and his cohorts in that business are now killing their male baby hogs and using them for compost.

And there are increasing calls in the U.S. for the regulators to change the rules on commodities contracts in an attempt to stop speculation.

But, other than the laissez faire Thais, none of these actions will plant another ear of corn or another stalk of grain. Instead, killing exports will only hurt farmers, assuring that the food shortage becomes a real food crisis.

What to do? Personally, I have recently been acting on Doug Casey's recommendation to buy beef... with hogs as well. While the cost of feeding them may cause a flood of meat on the market in the near term, as the farmers cull their herds... in time, and probably sooner rather than later, there will be a meat shortage.

[Ed. Note: Our own Bud Conrad was early into agriculture as an investment, and has been doing a lot of analysis on the topic. We'll continue to update you on his recommendations in the International Speculator. If you are interested in staying up-to-date on agricultural investments, details about our three-month, no-risk trial can be found here.]

Junk By Any Other Name

This week Moody's announced they were downgrading 32 different tranches of previously AAA-rated "Alt-A" mortgages. These are popularly referred to as "liar loans" - by the very same people who sold them in the first place -- because these loans don't require the applicant to provide proof of income or assets.

Given the previously staid reputation of the industry, one would expect that when down-grading bonds, the rating agencies would review their paperwork and realize that, perhaps, Mr. Jones in the cubicle down the hall made a slight oversight when initially appraising the bond portfolio. And so, after a quick admonishment to be more careful in the future, the rating agency would drop the portfolio down a notch or two.

Oh, if it was only so. Instead, what is going on is akin to learning that Mr. Jones has been indulging in a daily dose of hallucinogens. And so the latest Moody's downgrades are seeing many of the bonds knocked back from AAA, which is supposed to be above reproach, to junk status overnight. And Moody's is far from done; they have put another 254 Alt-A bond tranches on their negative ratings watch list.

The lame-stream media may want you to believe that the credit crisis is over, but quite the opposite is true - it's accelerating.

And so, for your further reference in the weeks and months ahead, I provide just below a guide to the Moody's rating scale, lifted wholesale from the AARP website. (Try not to giggle as you read the description of Aaa-rated debt...)

Moody's Bond Ratings

Aaa -- Best quality, with the smallest degree of investment risk.

Aa -- High quality by all standards; together with the Aaa group they comprise what are generally known as high-grade bonds.

A -- Possess many favorable investment attributes; considered upper-medium-grade bonds.

Baa -- Medium-grade bonds (neither highly protected nor poorly secured). Bonds rated Baa and above are considered investment grade.

Ba -- Have speculative elements; futures are not as well assured. Bonds rated Ba and below are generally considered speculative.

B -- Generally lack characteristics of a desirable investment.

Caa -- Bonds of poor standing.

C - Lowest-rated class of bonds, with extremely poor prospects of ever attaining any real investment standing.

Of course, downgrading a bond from AAA to junk overnight is not unlike pulling it out of the drawer and setting a match to it. I can tell you one thing. If I were a conservative buyer of AAA bonds, I would be none too happy. It's a good time to be a lawyer.

I Am Womyn!

Laundry, cooking, tidying up, promoting basic hygiene and healthful activities, all while trying to keep up with my regular duties at Casey Research... for a day or two at the beginning of my wife's European vacation, it was something of a personal challenge. Sort of like seeing a mountain and, strapping on the boots, striding forth indomitably, chin up and eyes flashing with the goal of reaching the distant top.

But the difference between mountain climbing and a steady course of single-parenting is that the mountains of daily duties are as if on a moving sidewalk, coming at you one after another, no end in sight.

For one shining moment this week, I pushed what I thought was the final load of laundry into the basket, but no longer than 15 minutes later uncovered a new stash of the stuff, tucked into a forgotten hamper. Then I realized the sheets on the beds needed changing, then the kids had a particularly muddy play session and next thing you know, the vanquished pile had returned with reinforcements.

Summing up the experience: while many and maybe even most members of the male gender have long paid polite lip service in acknowledging the challenging task their wives have in keeping up with domestic chores -- lip service usually accompanied with an understanding though insincere smile and maybe a gentle pat on the derriere -- the time has come to admit that women are tough. Far tougher than men, in fact.

Forget this whole, "Woe is me, I have to work at the office all day" nonsense. Many women have to work all day, but only after working all morning to get the kids out the door to school. Then, on return from their day jobs, they are greeted with yet more work, providing sustenance to the crowing beaks of their broods before rolling up the sleeves to get the laundry done, the pets fed, the kids to bed, etc. ,etc. -- ad infinitum.

While I have always tried to chip in and do my fair share of the daily chores, I realize now that what I consider "my fair share" is probably a tenth of what has to go on to keep the household from regressing to a level on par with that experienced in the Dark Ages: dirt-covered floors, filthy, rag-clothed children and mangy dogs fighting each other for the underprepared table scraps.

And so, speaking only for myself, I hereby apologize to all womynhood for my personal lack of true understanding these many years. And I'll go one step further and swear that, should they allow me into their club, I shall from this point forward be a card-carrying feminist. Let my people go! I say.

Furthermore, I will throw my wholehearted support behind Hillary. Compared to any of her gender, Obama and McCain are wimps that she could take with one hand while the other was flipping the morning pancakes!

Manhunt Report: Diamonds Are a Girl's Best Friend?

Last week I promised an update on "Manhunt." Well, true to her word, the subject in our experiment in matchmaking has sent her first report, which follows...

Inquiring minds want to know an update to Manhunt, an ad which ran in this Casey Research publication a few weeks ago. The response has been overwhelming. I've never experienced so many quality emails -- and quality males -- all in one place, courting me, all at the same time. I'm quite overwhelmed and am at a loss for words at the moment. To best illustrate what it has been like to be me ever since Manhunt was published, I present to you Marilyn Monroe's performance in Gentlemen Prefer Blondes:

Gentlemen Prefer Blondes - YouTube Clips 

Marilyn Monroe vocalized:

The French were bred to die for love they delight in fighting duels
but I prefer a man who lives
and gives expensive jewels.

A kiss on the hand may be quite continental
but diamonds are a girl's best friend . . .

Are diamonds really a girl's best friend? No, no. Oh, no, no, no, no, no, Marilyn Monroe. Nay, I say. Diamonds are not a girl's best friend, at least not in this day and age of the New Diamond Age. The song of myself I sing:

The French were bred to die for love they delight in fighting duels
but I prefer a man who gives
and lives to break the rules.

A kiss on the hand should be intercontinental
Casey Research Subscribers are a girl's best friend . . .

I happily excuse Marilyn's perspective. To each her own. Not to mention Marilyn's performance was in 1953. That was then, and this is now. The world transforms. Values change. Courtship e-volves. An "anti-suitor" sent me an email, implying that I was a gold-digger. I clarified to him:

I'm not a gold digger. Should I be? But I'm a libertarian-digger. More precisely, a security-digger. Meeting a man well invested in metals would provide me with a greater sense of security. I'd like to be optimistic, but realistically, I don't see the dollar just dropping -- I see it altogether imploding. My lifestyle is extraordinarily simple, and I like it that way. I detest shopping, especially for shoes. And diamonds really bore me. A dog is a girl's best friend.

As for gentlemen, some still prefer blondes, but others turn their heads for brunettes. In fact, some even say that blondes are becoming an extinct species. Nevertheless, I digress.

The Manhunt has practically become a full-time job for me. What's a woman to do when she has handfuls of wonderful men at her fingertips? Proceed slowly. Set up a spreadsheet. Track and filter accordingly, for, more valuable than diamonds or gold, is the ability to connect with like-minded people. Or, in my case, to ultimately find a compatible long-term mate. The Project Manhunt men who've contact me are gems -- individuals of great value. If someone gets filtered out due to partner incompatibility, I still keep him on record for friendship-ability.

Two weeks into Project Manhunt, the content/experiences I've already encountered are worthy of being written into a book. (Suitors: Don't worry, I won't use your names. Nor will I send your contact data to marketers. I'm pro-privacy.)

I don't want to waste much more of David Galland's newsletter space, so before I go, I'll provide you with tidbits of Project Manhunt tabloid gossip. One man has proposed marriage to me via email. Another is a kind widower with children, and his family sounds quite dandy. A different suitor wants me to be his co-pilot -- seriously -- and is eager to teach me how to fly his plane.

Matches aren't made overnight and I'm certain Project Manhunt e-courtship shall continue for quite some time. So keep the emails coming, boys. Stay tuned for Project Manhunt Report #2 titled "Material Girl."

Miscellany

The philosopher/poet George Santayana is credited with the words, "Those who cannot remember the past are condemned to repeat it." I wonder what he would say, then, about White House Press Secretary Dana Perino. According to an article my friend Brian Hunt read in Playboy (which I am sure he reads only for the articles) and quoted to me, she admitted on a radio program that she didn't know what the Cuban Missile Crisis was.

"I was panicked a bit because I really don't know about the Cuban Missile Crisis," Perino said of the time during a White House briefing when she was asked a question that referred to the confrontation. "It had to do with Cuba and missiles, I'm pretty sure."

It is always remarkable to me how it is that people labor under the impression that those in positions of power possess a superior intellect, sharpened by years of study.

And so I'd like to thank Ms. Perino for doing her part to help correct that wrong impression. (Just for the heck of it, this week I am going to survey every adult I meet on their awareness of the Cuban Missile Crisis and see whether Ms. Perino's ignorance on the topic is, rather than an indictment of political class, a commentary on the failure of American education.)

Also in the Miscellany category this week....

  • Dallas Phyle. Maria W., who has taken it upon herself to organize a get-together of Casey subscribers in the Dallas/Ft. Worth area has written in that the first meeting will be held Friday, May 2nd at 6:30 pm at Beau's at the Crescent Court Hotel. If you'd like to attend and share views with other members of the Casey family, then drop us a note at phyle@caseyresearch.com and we'll get you connected.

  • Bud Conrad in the Big Apple. Casey Research Chief Economist Bud Conrad will be speaking on the topic of "Peak Everything" and doing a workshop at the upcoming Hard Assets Conference at the Marriott Marquis in New York. You can learn more about the conference by visiting this website. http://www.iiconf.com/pebble.asp?relid=62254

  • Save the Witches! Some people have suggested that the massively undeveloped and fertile lands of Africa might hold the solution to world hunger. Based on many business trips to Africa over the years, I'm not so optimistic. You may better understand my skepticism if I relate an experience I had with a driver I once used to take me here and there in South Africa and Bophuthatswana.

    He was, I can assure you, a very elegant and well-spoken man. After spending much of a week in his company, I thought I knew him fairly well. Until one morning, while reading the morning paper, I came across an item describing how some local villagers had become convinced that three young women had sold lightning to the devil who then hurled it back in the vicinity of the village. To assure it wouldn't happen again, said villagers rounded the women up, locked them in the trunk of an abandoned car and set it on fire.

    When I asked my driver about this unfortunate incident, he went on a diatribe - not against the barbaric ritual, but soundly in favor of it, claiming that the presence in Africa of the white man had erroneously deprived the locals of their magic. We didn't speak a lot after that.

    Of course, while this sort of ignorance will only be put to rest with economic success and the educational opportunities that accompany such success, there is nothing to say that Africa can't, or won't, someday be a more successful continent. But I fear it may be many decades away. I mention this because this week, someone sent me a link to a rather humorous example of the superstitions that continue to plague Africa... a widespread panic over the theft of men's private parts, to use a delicate term. If you have nothing better to do, click here to give it a read...

  • China's Coal. Just last week in these musings, we discussed the outlook for coal. Which, depending on how you view these things, is either helped or hurt by the news that China is down to just 12 days' supply. For a country that is largely run by coal, this is no small thing and should provide a lot of support to coal for some time to come.

    (Coal is, of course, one of the areas we follow in our Casey Energy Speculator, an exceptional value in our admittedly biased opinion. Checking it out is easy with our risk-free three-month trial. Don't like it, cancel within 3 months and you get all your money back... what could be more fair than that? Learn more by clicking here.)

And That, Dear Readers, Is That for This Week

As always, I sincerely appreciate you taking the time to read and to subscribe to a Casey Research publication. If you have written me in the last ten days and I have not responded, I apologize as the household tasks, on top of my duties with Casey Research, have vaporized any spare time. I will endeavor to respond early next week (my wife returns tonight... big party!).

As I sign off, gold is battling back toward $900 and the DJIA is off a fair bit based on the news that U.S. consumer confidence has plummeted to the lowest levels in 26 years (no surprise there).

A couple of weeks ago, I closed with a guess-the-gold price competition. We'll do it again this week. The parameters are that you have to have your bet in by midnight (EST) Monday, April 28. The person closest to the intraday spot price high for the week, as of noon on Friday, May 2, wins a one-year subscription to BIG GOLD, our publication dedicated to providing profitable analysis on large-cap, gold and silver-producing and near-production companies. Send your entries to David@caseyresearch.com.

My bet for next week's high? $927.

See you next week!

sig

David Galland
Managing Director
Casey Research, LLC.





Posted 04-29-2008 9:56 AM by David Galland