Obama’s New Deal

"Now, what we’re doing, I want to be clear, we’re not trying to push financial reform because we begrudge success that’s fairly earned. I mean, I do think at a certain point you’ve made enough money." President Barack Obama, April 28, 2010, (emphasis added).

President Barack Obama went to Wall Street last month to champion his cause for financial regulation. Fresh from his healthcare victory the President seems itching for another fight.

Meanwhile the Securities and Exchange Commission (SEC) announced fraud charges against Goldman Sachs, arguing that the firm had committed fraud in structuring and selling its debt obligations. This has Congressman Darrell Issa (R-Calif.) raising troubling questions.

Issa has asked the inspector general of the SEC to investigate the timing of the announcement. He believes the Obama Administration is going after Goldman Sachs just as Democrats are pushing for passage of financial reform legislation in the Senate.

According to Issa, “[This has] fueled suspicion that the Commission … may have engaged in unauthorized disclosure or discussion of Commission proceedings in order to affect the debate over financial regulatory legislation currently pending.”

Last week Goldman Sachs leaked a story that it doesn’t want to engage in a legal battle with the SEC. The Wall Street Journal quoted one senior executive at the firm as saying "We can’t be going to war with the SEC." Goldman understands it needs to choose its battles.

I should have done that better when I took up boxing at the Lilac City Boxing Club. One day I was on a roll, landing a combination on my sparring partner, a man who had once fought Frank Bruno for the World Boxing Association (WBA) heavyweight title. After connecting with a final punch I stepped back. The grizzled old fighter shrugged his hulking shoulders and then gave me a million dollar grin.

“My turn,” said Harvey Steichen.

A few years later I started working for what was then Prudential Securities in Spokane, Wash. I quickly learned that everyone associated with Wall Street was interested in two things—making money and keeping regulators at bay.

One day the Men in Black arrived. As two SEC field agents marched into our offices, one of the old timers whispered to me, “Here comes the Gestapo.” A few weeks later, two up-and-coming brokers were summarily dismissed. I never knew their crime but I understood they were fired because of a judgment by the Federal government. The rumor was they were charged with insider trading.

Don’t get me wrong. I hate Wall Street. After six months at the brokerage company I decided I either had to jump out of my eighth story office or quit.

I think many of you probably feel the same kind of disdain for high finance, especially after learning that big banks deceived their clients into buying risky mortgage investments while they themselves ran side bets that the investments would go bust.

When the house of cards collapsed two years ago it was Washington’s argument that major investment houses simply had to be bailed out. In that aftermath, scores of executives tucked away multi-million dollar bonuses, much of it courtesy of Joe and Jill Taxpayer.

But now the Obama administration is demanding its pound of flesh. According to the The Independent, “This [the fight with Goldman Sachs[ has become the greatest battle between the American government and a private firm since President Franklin Roosevelt took on the ‘House of Morgan’ in the 1930s.”

Illustration of Barack Obama taking notes from Franklin D. RooseveltObama has stylized himself as a New Deal President the likes of FDR. A couple of months ago Obama denounced “fat-cat bankers” for rewarding themselves bonuses after being saved by government bailouts. “Shameful,” he said. In fact, this President sounds much like FDR, who in 1936 denounced Wall Street for its “financial monopoly, speculation, reckless banking,” and who fueled his fight by saying: “I welcome their hatred.”

I hate Wall Street, but I hate big government even more. The last thing America needs is another FDR. The Billings Gazette recently summed up that Presidency: “FDR closed all the banks, removed the gold standard for the dollar, created innumerable government agencies, established the Tennessee Valley Authority, instituted a minimum wage for workers, encouraged unionization of industry, created the Social Security system, initiated public housing programs and allowed the national debt to soar into the billions. In addition, he attempted to pack the Supreme Court.”

Under Obama’s New Deal the United States has reversed the course set by Ronald Reagan, a man who brought a tidal wave of deregulation and with it, unprecedented economic prosperity. Under Obama’s command the U.S. is veering hard to the Left, a destination that will allow less freedom while creating bigger government. And oh yes, he is also packing the Supreme Court.

“The nanny state is smothering us all,” wrote the Ukiah Daily Journal. “The economic financial crisis which is upon us is being deliberately made worse (or at least being deliberately caused to continue) in order to be used as one excuse to turn the U.S. into a socialist state. If you don’t believe this, stay tuned, because you have been overwhelmed by the lies and myths.”

If you’re like me you’re probably feeling staggered by the Obama onslaught. I urge you to hang tough and stay in the fight. In the words of Lou Holtz, the former football coach at Notre Dame, “We have to fight for our freedom.”

Action To Take
There is a tidal wave of regulation coming down the pike and not just for the investment banks. Big oil is also going to get clobbered in the wake of the Gulf Coast disaster. And the Federal government won’t stop there. I expect that Washington will unroll miles of red tape on publicly traded companies. The result will raise the cost of doing business. That’s a profit killer, something that Wall Street hasn’t yet awakened to. Tighter regulations, growing inflation and rising interest rates will unleash a raging bear market. Therefore, I urge you to stay liquid with cash and/or short-term Treasury bills, physical precious metals and a sprinkling of gold and energy stocks.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

A Crude Coincidence—The Gulf Oil Spill Works Out Well For The Greens

"The end justifies the means.”Machiavelli
 
Fact: Deep water oil platforms don’t just blow up. As the centerpieces of projects that cost billions of dollars, they are designed not to.

Fact: Just before 10 a.m. on April 20 a Transocean rig called the Deepwater Horizon 40 miles south of Venice, La., exploded and caught fire as it was working a well for BP.

Fact: Two weeks later as much as 300,000 barrels of crude oil have spread into the Gulf of Mexico, the bulk of it hitting the shores of Louisiana. More than 2 million barrels could spill out before the well is finally capped making this disaster worse than the Exxon Valdez catastrophe which spilled 400,000 barrels of oil into Alaska’s Prince William Sound in 1989.

Fact: This giant gulf oil spill happened less than three weeks after President Barack Obama announced he would allow offshore drilling.

Fact: Few in the mainstream media or in the federal government are putting a spotlight on to what caused the explosion that killed 11 men. Rather, their focus has been on what it will do to the environment.

Fact: The Greens have all the ammunition they need to permanently suspend future offshore oil production as well as drilling in environmentally sensitive areas, such as the oil-rich Arctic National Wildlife Refuge.

On April 30 Obama suspended plans to expand offshore oil drilling. That same day, during the PBS talk show, The McLaughlin Group, Eleanor Clift made this prediction: “The catastrophic oil spill in the gulf will silence Sarah Palin’s, ‘Drill, Baby, Drill.’”

That’s the aim of the Greens. Michael Brune, executive director of the Sierra Club,said on Saturday: “Taking a temporary break from offshore drilling is an important step, but it’s not enough. We need to stop new offshore drilling for good, now. And then we need an aggressive plan to wean America from dirty fossil fuels in the next two decades.”

What My Deep Throat Says About This Deep Disaster
While I have been around plenty of oil rigs in my life I am hardly an expert. But I have friends who are. One of them is Ryan who is an oil field technician for one of the original Seven Sisters here in Calgary. I met with him last Friday to talk about the Transocean accident and what might have triggered the explosion.

“It probably comes down to one of two things,” said Ryan. “The blowout preventer failed to operate and seal the well. With the computers they have on deep ocean wells that shouldn’t happen; there is always the possibility of human error.” He looked around the room and then confided: “And of course it could be sabotage.”

The blowout preventer is a set of valves that connects the pipe from underground to the surface and it is used to control excessive pressure that might go further up the line. Valves can burst from either high-pressure oil, or oil mixed with gas which travels to the surface unexpectedly. That can start a catastrophic fire if sparked by the electrical gear on the platform. It should be noted that oil services contractor Halliburton is denying that its workers might have caused the accident.

It has already been alleged that Halliburton improperly cemented the well. Cementing is a process used to fill the gap between the drilled hole and the casing that brings oil and gas up out of the ground.

There has been speculation on whether the sealing process had been completed before the blast occurred. Yet the company insists that its workers had finished the cementing operation 20 hours before the rig went up in flames.

Perhaps It Was Just A Coincidence
The Wall Street Journal wrote on Friday: “Concerns about the cementing process—and about whether rigs have enough safeguards to prevent blowouts—raise questions about whether the industry can safely drill in deep water and whether regulators are up to the task of monitoring them.” To its credit, the WSJ is one of the few to report on the question of what caused the explosion.

While the Exxon Valdez accident immediately focused on the cause of the spill and the role that ship’s captain Joseph Jeffrey Hazelwood played, there is so far scant information and inquiry into what triggered the explosion on board the Deepwater Horizon.

The Greens were furious with Obama for allowing offshore drilling. It may be a happenstance that the Deepwater Horizon blew up three weeks later. But given the history of the Green movement I think it is worth considering that environmental extremists could have had a hand in this accident.

I had been thinking along these lines this past Friday when I got an email from my editor asking if I thought something was fishy and would I like to write about it.

I said yes, even though I was a bit apprehensive that you folks might consider me a reactionary or even a nut. And while I am not a big listener of Rush Limbaugh, I was encouraged when I read he was thinking along the same lines.

"Obviously the regime (the Obama Administration) is open to the idea that this is not an accident,” said Limbaugh. "The original Earth Day 40 years ago was inspired by the river in Cleveland catching fire. Forty years later, the day before Earth Day this year, the gulf is on fire. Coincidence? The jury is still out."

Love him or loathe him, what Limbaugh says is backed up by the actions of the White House which sent Homeland Security Secretary Janet Napolitano to the site. Napolitano has declared this is “an incident of national significance." Then on Sunday Obama visited the Gulf Coast to bolster efforts to control the spill.

The Dark Side Of The Greens
Of course I don’t know that eco-terrorists sparked this catastrophe. But I do know you don’t call a cop unless you think there might have been a crime. And some extremists in the Green movement are most certainly criminals.

The Federal government considers eco-terrorism a greater threat to America than Osama bin Laden and his organization al Qaida. According to the Federal Bureau of Investigation (FBI): “Eco-terrorism is the use or threatened use of violence of a criminal nature against innocent victims or property by an environmentally oriented, sub-national group for environmental-political reasons, or aimed at an audience beyond the target, often of a symbolic nature."

Guilty or not I have no doubt that the extremists in the environmental movement must be celebrating the Gulf Coast crisis. A recent poll by the WSJ asked: “Have your views on offshore drilling changed after the oil spill off the Louisiana coast?” The response by its conservative readership was a resounding, yes.

We may never know what caused the explosion that sunk the Deepwater Horizon. What we do know is that 11 men lost their lives and there is going to be untold suffering to the wildlife and on the people of America’s Gulf Coast. We can also expect this catastrophe will do to deep water oil exploration what Chernobyl did to nuclear energy. I expect new offshore drilling to cease for years, perhaps even decades. That sets up a future of greater dependence on Arab oil imports and higher energy prices.

Action To Take: Expect plenty of blame to go around and three companies are going to get hammered: BP (NYSE: BP, $52.15), Transocean Ltd. (NYSE: RIG, $72.32) and Halliburton Co. (NYSE: HAL, $30.65). If you own shares in these stocks liquidate them immediately. If you own energy mutual funds make sure that part of your fund does not own these three stocks. If they do, sell the fund. What is ironic is that over the past few years BP has bragged that its name no longer stands for British Petroleum but rather Beyond Petroleum. It looks as if they might turn out to be right.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Bowing To China: What It Means To Our Future

“Let China sleep, for when China awakes she will shake the world.” Napoleon Bonaparte.
                                         
American greed and extravagance has awakened China, and an eastern shadow is being cast on an indebted and divided America. At stake is our economic future.

It seems hard to believe but in just two generations, from Richard Nixon to Barack Obama, America has crumpled from world kingpin to global has-been. In fact this month President Obama bowed before Paramount Leader of China, Hu Jintao, at the nuclear security summit.

Little wonder our President defers to the Chinese leader. The Treasury Department’s monthly Treasury International Capital report was just released and it shows China with $877.5 billion in long-term Treasury debt. Even worse, the Obama administration needs the Chinese government to buy part of the estimated $2.4 trillion in Treasury debt that Washington must sell off this year.

The Obama administration is praying that the Communists will waddle-up and buy hundreds of more billions of dollars in Uncle Sam IOUs. So far things are not panning out. In February China trimmed its holdings of United States Treasury debt by 1.3 percent, the fourth consecutive decline.

Unless China antes up the recovery will crash and burn. Without robust foreign demand for U.S. Treasuries, interest rates that Washington pays to keep the country solvent will soar.

Business Week reported last week that U.S.-China relations are strained on several fronts, including Chinese censorship, the value of the Yuan, the Copenhagen climate conference, even Obama’s meeting with the Dalai Lama. The final point underscores just how little leverage America has—the spiritual leader had to be shown out the back door of the White House, sidestepping trash, for fear that the Chinese might be angered.

Nixon’s Biggest Blunder
Short of sacrificing Taiwan and living in economic servitude, there may be no pleasing China. According to The Daily Caller, “In either public or private, China will not take orders from the U.S. or anyone else. Not only has Obama’s rhetorical magic not worked on China, he has received a public dressing down by Chinese officials. It was simply a reminder of new global realities. Ultimately, no one will tame China.”

It is a far cry from the world we knew 40 years ago. History may yet declare that Richard Nixon’s worst blunder was not Watergate but his awakening of China. When Nixon played his China card in 1972 the U.S. had no diplomatic relations, no embassy; not even an established route of communication with China. But in less than two generations the Soviet Union, America’s then rival, crumbled. Beijing has filled the vacuum. Today it is our largest creditor and it is becoming an unprecedented economic colossus.

This year China’s gross domestic product (GDP) will top $5 trillion, making it the world’s second-largest economy behind only the U.S. In fact, China has eclipsed Japan five years sooner than was forecast. According to The New York Times, China has also surpassed Japan in having the biggest trade surplus and foreign currency reserves, as well as the highest steel production. China has even overtaken Japan as the world’s largest automobile producer.

C.H. Kwan, a senior fellow at the Nomura Institute of Capital Market Research, left China in the late 1970s to capture the magic that was Japan. Today he believes he got it all wrong. Based on current growth and currency trends, Kwan forecasts that the Chinese economy will surpass the United States by 2039. And that date could move up to 2026 if China lets its currency appreciate by a mere 2 percent a year.

“We’re no longer talking about China making lots of shoes,” said Kwan. “China is about to leave everyone behind in a big way.”

In terms of wealth and power China is becoming what America use to be. China’s GDP grew a shade less than 12 percent in the first quarter of this year. Even more impressively, inflation remained low during the quarter, up just over 2 percent. Strip away food prices, which have jumped because of a major drought, and inflation would almost be flat.

What makes China’s accomplishment so remarkable is that 40 years ago the nation was impoverished. An estimated 90 million Chinese died under Chairman Mao’s rule, making him thrice as an effective killer of his people than was Joseph Stalin. China has polished up its image on the world stage with dalliances like hosting the Olympic Games, but Mao’s grand ambitions are very much intact.

According to the April 15, FX Street.com: “China is out for world domination.”

No Tickey No Money
China’s military may not yet challenge the U.S., but Beijing wields the world’s most powerful weapon—credit. China’s foreign reserves, the world’s largest, rose to a new high of $2.45 trillion at the end of March, up a whopping 25 percent from a year earlier.

It wasn’t until 2006, or 30 years after Mao’s death, that China accumulated its first $1 trillion in foreign reserves. Yet by last April that amount had doubled to $2 trillion and by the end of this year Beijing may hold in its hands $3 trillion in foreign reserves. If Obama gets his way, $1 trillion of that sum will be in liquid Treasury instruments. All that money has a lot of strings.

Last month Premier Wen Jiabao, China’s top economic official, lectured Washington to take "concrete steps" to reassure Treasury investors. Keep in mind the irony: Jiabao, a communist, is demanding that the Obama administration rein in big government spending and preserve the greenback’s integrity. While Obama bows publicly to Beijing, he appears oblivious to their demands on curbing spending. The consequences of this will be horrendous.

Our future boils down to Washington’s insatiable demand for more money. Earlier this month Commodity Online reported that seven U.S. states are in worse financial condition than Greece, Ireland, Portugal and Spain. “Shelter may prove hard to find. With a $3.83 trillion budget, a $12.3 trillion federal government debt, a $1.35 trillion 2010 budget deficit and $63 trillion in unfunded liabilities, the fiscal condition of the U.S. has come into question and foreign interest in U.S. Treasuries has declined.”

chart

As the graph above shows, rates on 10-year Treasuries are now touching on 4 percent, twice as high as they were 16 months ago. If China continues to withdraw from weekly multi-billion dollar Treasury auctions—or worse yet starts to sell some of its Treasury holdings—interest rates will soar. Given the vastness of America’s borrowing needs I would not be surprised to see Treasury yields double again over the next 12 months. That will damn the recovery and kill the bull market in Big Board Stocks. So far only Obama has been bowing down to China, but unless he gets a grip on federal spending, we will all have to get in the prone position.

Action To Take: Sell any and all bonds other than three-month Treasury bills. Lock in interest rates wherever possible. Don’t buy into the bull market on Wall Street. It is as hollow as a fortune cookie.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Fear and Loathing: Why It’s Bullish for Gold

“I hate to say this, but this place is getting to me. I think I’m getting the Fear.” Fear and Loathing in Las Vegas.

First it was Saddam Hussein and his weapons of mass destruction. We had to invade Iraq. Never mind that the United States had a no fly zone over the country and had practically destroyed the Republican Guard; that Iraq had no effective way to deliver such weapons or that the Central Intelligence Agency (CIA) and the State Department didn’t think such weapons even existed.

Then in 2008 the Washington fear machine was at work again. The White House, the Federal Reserve and the Treasury Department were screaming that the world was falling into another Great Depression.

The latest End of Days is a prophecy from Hillary Clinton. At the Nuclear Security Summit in Washington last week, the U.S. Secretary of State said that terrorists like al-Qaida pose a nuclear threat. It is all part of the Obama administration’s plan to convince the American people that al-Qaida is going nuclear.

According to journalist Emily Gertz, “Fear of the terrorist has been used for the past several years to induce Americans to accept an increasingly authoritarian government and the dilution of our civil liberties.”

It is not just the fear of terrorists that President Obama and his Liberal elite are using to expand their sphere of influence. It is FEAR of everything: the jobs we might lose, the food we eat; even the water we drink and the air we breathe.

In his essay, The Politics of Fear, Alex Gourevitch writes that fear mongering is part and parcel of the environmental movement. “Environmentalism is a left-wing politics of fear because it rests on the deeply fearful idea that only an overweening threat to our physical and collective health… Threats to the very conditions of life, rather than social controversies over power and distribution, come to motivate political engagement—an engagement that presumes setting to one side inequality and unfreedom (sic) as the central categories of political contestation.”

A Gentler Time
America has vastly changed from when FDR proclaimed: “The only thing we have to fear is fear itself.”

No doubt The Age of Fear began with 9/11. Before, Washington did its best to keep a lid on anxieties. The Crash of ’87 is an example.

I was driving to work and the radio announcer said: “The Dow Industrials are currently down 325 points.”

“That’s ridiculous,” I thought. The Dow couldn’t be down that much. Either the announcer was stupid or he was playing a prank.

But it was true. The stock market was plunging. It was Black Monday and the Dow plummeted 508 points, or 23 percent, to 1,739. Half a trillion dollars in wealth had just been erased. Over the next few days the world witnessed the Dow’s fall from over 2,600 to 1,700.

What I remember most about the Crash of ’87 was the Federal government’s response to it. Federal Reserve Chairman Alan Greenspan not only provided liquidity for the banks but urged calm and told the world that America’s economy was “fundamentally sound”. It was a message reiterated by House Speaker Jim Wright, President Ronald Reagan and U.S. Treasury Secretary James Baker. It was our Federal government doing its damndest to reduce panic; to stabilize a dangerous situation.

The stock market crash of ’08 brought an entirely different response from Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson, as explained by Andrew Ross Sorkin in his bestseller, Too Big To Fail. According to Sorkin, the leadership of the Fed and Treasury opted for a novel strategy to get Congress to ante up half a trillion dollars to bail out Wall Street—fear.

“This is only going to work if you scare the sh** out of them.”

That had been Jim Wilkinson’s advice for Paulson before he and Bernanke left to meet with the congressional leadership at Nancy Pelosi’s office that evening. By Wilkinson’s reckoning, unless they could convince Congress that the world was literally going to come to an end, they would never receive approval for a $500 billion bailout package for Wall Street.

History’s Lessons About Fanning Fears
Washington had struck on something that tyrants have known for centuries—that fanning fear makes a populace compliant to just about anything.

A few years before the Wall Street bailout House Speaker Nancy Pelosi warned of impending danger out of Iraq: “Saddam Hussein has been engaged in the development of weapons of mass destruction technology.”

Then in the autumn of 2008 Pelosi did a flip-flop; first opposing and then embracing what had become a $700 billion bailout of the financial markets. In the end Pelosi and two presidents argued that without the taxpayer bailout our entire financial system faced collapse.

No doubt Pelosi will stand shoulder to shoulder with Secretary Clinton on the latest great fear, nuke toting mullahs. The real question is what is Pelosi and the Obama administration really selling? The answer is submission—the handing over of our liberty—in the name of national defense, the economy and the environment.

Of course pedaling fear is nothing new. Ancients like Alexander did it. So too has the Catholic Church, Joseph Stalin and Adolph Hitler. The difference is that America’s leaders once allayed our fears. Today they incite them. FDR was wrong, what we really need to fear is the fear-makers themselves.

Washington’s New Strategy Will Send Gold Soaring
America’s leaders might not be less moral than those before them (I will let you decide). What has changed is that Washington once had a vested interest in quieting fear. It was how government supported the once mighty U.S. dollar.

What is painfully evident is that over the past decade the Federal government has been intent on getting its way, the dollar be damned. And it certainly has been. The U.S. dollar index, a measurement against a basket of other currencies, has fallen by one third. During the same period the price of gold has risen fourfold.

Action To Take: Expect Washington to fan fears on everything from the environment to the economy, even at the expense of the dollar. That means you should diversify out of most dollar instruments and buy physical precious metals. I urge you to store 1-ounce gold and silver Eagles and 1-ounce platinum rounds for your safekeeping.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Sticker Shock—The Taxing of America

We are being taxed into oblivion. No, income taxes have not risen for most of us, at least not yet. Yet slowly and surely the tax vice is closing in. It is all part and parcel of President Obama’s run and gun break towards socialism.

Of course you won’t find newsmakers in agreement with your humble reporter, at least not within the editorial page of The Wall Street Journal or on the front page of The New York Times. Not because they are corrupt or leftists. Rather because Obama has done too good a job in obscuring the truth about the American economy and his own ambitions.

Take the energy situation. No sooner had the White House won modest acclaim for offshore drilling than they did an about-face and announced their intention to tighten their grip on one of the few remaining bastions of freedom—the open road.

This month the Environmental Protection Agency (EPA) set new regulations covering vehicle efficiency. The new rule requires that United States cars and light trucks meet an average fuel-economy standard of 35.5 miles per gallon by 2016.

Dying To Be Green
Administration officials say manufacturers can meet the targets mostly with existing technology and without drastically altering consumers’ choices of vehicles.

There is just one catch; to meet the EPA’s new standard average, new-vehicle prices will rise by an additional $1,100 between now and 2016. It is just further evidence that going green is neither cheap nor easy. In fact it turns out to be a killer.

A report produced last summer by the Obama administration’s own National Highway Transportation Safety Administration (NHTSA) underscored that while clap-trap cars get better gas mileage, occupants are more likely to die in accidents. The fatality rate in small cars is twice that of larger cars. By NHTSA’s cold calculations an additional 493 Americans will die each year. It seems that the big wigs in Washington can live with this since everything from the presidential limousine to cabinet staff cars are going to remain big and, oh yes, gasoline powered. It’s a policy of: “Save a tree, kill a driver.”

The EPA’s mandate is fraught with other problems. Detroit is hanging on by the skin of its teeth in large part thanks to the billions of dollars in federal bailouts ($50 billion to General Motors alone). Despite all that help, membership in the United Auto Workers Union (UAW) has hit a post-World War II low. Last week it was reported that UAW had 355,191 members at the end of 2009. That was down 18 percent from the year before and leaves the union with less than a quarter of the membership it had in 1979.

You would think with the recession still ongoing America could ill afford to make cars more expensive. Then again, the Federal government probably has contingency plans for another stimulus package, one that will give Washington even a greater say over the economy.

Stall Baby Stall
Another industry not yet out of the woods is petroleum. Obama’s offshore oil drilling proposal has not spurred North American oilmen to roll out the oil rigs. Executives in the industry I have talked to are sceptical of a plan that is rife with challenges and chockfull of regulatory hoops.

Consider the Atlantic Coast. A previously planned lease sale off the Virginia coast will go forward, but not until 2012 and only then if it passes review under the National Environmental Policy Act. Furthermore, public meetings will be held on all affected coastal areas this summer to set up Environmental Impact Studies. They will take at least a year. If that goes well then there will be a three month public comment period. Then more analyses and finally—yes finally—an impact statement sent to the Secretary of the Interior. And if the Greens don’t like what the secretary has to say they can go to court. As you can see, the red tape is certain to stretch further than the wells themselves.

Meanwhile, drilling along the ripe west coast and the plum parts of Alaska—regions that Congress approved in 2008—are now off limits.

If you think that petroleum’s importance will soon be diminished by Obama’s Green Revolution, a story out of Texas should give you pause.

According to the April 5 issue of Texas Watchdog, “If the people of Bedford, Texas, are still borrowing whatever they are calling books in 72 years, they may find themselves in the public library on the very day the energy saved by the library’s planned solar power system finally equals the cost to build it.”

I don’t know about you, but I will only be 124 when solar power like that at the Bedford Library starts paying dividends. Things are even better for Austin Community College. The college, with the help of Federal stimulus dollars, can equip two of its campuses with solar energy. The savings commence in 2062!

So far 32 projects in Texas have been given stimulus dollars by the State Energy Conservation Office. They are 80 percent paid for by taxpayers. Texas alone has locked in $290 million Federal tax dollars for green energy programs via the American Recovery and Reinvestment Act.

So far the Federal government has set aside $17 billion for the Department of Energy to waste money on things like solar power in Texas. Instead of lending money for things that might pay off during the next ice age the government should be selling offshore oil leases.

Rising Interest Rates Will Tax Everyone
Unfortunately we have bigger immediate problems than Washington’s lamebrain economic policies. The yield on 10-year Treasuries has just climbed above 4 percent. That is the highest rate in nearly a year. Rising Treasury yields portend to rising interest rates across the board. Rates will continue to climb as Treasury auctions are met with dwindling bids by investors near and far.

Little wonder the U.S. dollar continues to weaken (the Canadian Loonie is now trading above par) and the flood of new Treasury debt continues to swell. Last week alone the Treasury sold $82 billion (yes billion) in notes and bonds. At that pace the Treasury will add another $4 trillion to America’s already staggering $12.8 trillion debt by next spring.

The Democrats mismanagement of the economy on everything from industry to energy is certain to push interest rates higher—much, much higher.

Action To Take: Sell all debt instruments such as bonds and anything longer than a three-month Treasury bill. Use the funds to buy physical gold in the form of non-numismatic 1-ounce coins. Also, if you have to carry debt, say for a mortgage, lock in your interest rate. It is essential you rid you and your family of any variable interest rate loans.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Obamacare (Obamamania) And The Ghost Of Pierre Trudeau

"This is like deja vu all over again."
Yogi Berra

The dictum hit me like a shockwave: Buy into President Obama’s healthcare plan or be considered a criminal.

I had seen it before; a time when another young legal scholar became a sensation. Once he was in power a nation waited breathlessly for him to deliver a new age. He did so with guile and determination.

That man was Pierre Elliott Trudeau, and decades after he left office Canada is still reeling.

Trudeaumania hit Canada in the mid-60s. Trudeau was then a young self-admitted Marxist and Harvard grad (yes Harvard!). He was as brilliant as he was ruthless, and he used his Red Guard elitists to sweep away the Liberal establishment. His first priority: healthcare and financial reform.

It didn’t hurt Trudeau that he was French Canadian. That allowed his supporters and the mainstream media to claim that political opponents were acting out of centuries old prejudices.

Trudeau’s liberal government called themselves “libertarian socialists” and their near dictatorial rule spanned from 1968 to 1984. During that time the Prime Minister set his sights on building what he called a “Just Society.”

“It seems evident to me that the regime of free enterprise has shown itself incapable of adequately resolving problems posed in education, health, housing, full employment, etc.,” said Trudeau.

He backed up his words by implementing the Canada Health Act. It prohibited user fees and extra billing by doctors. Yes, the Prime Minister wrote into law that doctors could only make what the government decided they should be paid. Many of Canada’s best doctors immigrated to the United States.

But Trudeau had loftier goals than just healthcare. He declared that intervention needed to be administered, "at the first sign of national economic weakness: to stimulate buying by putting more money in the hands of consumers.”

To that end Trudeau dictated that, “The State should distribute, extensively and resolutely, payments of all kinds: direct aid, unemployment insurance, agricultural assistance and various grants.”

Nationalization and the Suspension of Habeas Corpus
The Trudeau government launched a wave of nationalization programs. None were larger or more devastating than the National Energy Program (NEP) enacted in 1980.

The NEP was set up to remedy spiraling oil costs for Canadians by forcing oil companies operating in Western Canada to sell their petroleum at a discount to the Eastern provinces. It was nothing short of larceny. Eastern Canada received Western oil at a vast discount. It is estimated that the NEP cost Alberta $100 billion. It was such a blatant seizure of wealth that many of us in Alberta joined a secessionist political party.

The March 11, 2008, American Thinker sums up the Trudeau years: “(He) nationalized 25 percent of the petroleum industry and ruined the nascent boom economy of conservative Alberta. He ensured minority group representation at every level of government and instituted French language requirements in remote English-speaking corners of the country. He turned away from the United States and toward a "third way", vowing to make Canada more European, including the imposition metric system.”

Trudeau did all of that and much more.

In October 1970, the terrorist group FLQ kidnapped British Trade Commissioner James Cross and Quebec’s Minister of Labour Pierre Laporte.

When CBC reporter Tim Ralfe asked him how far he was willing to go to stop the FLQ, Trudeau replied: "Just watch me."

Three days later, on Oct. 16, 1970, the Cabinet under Trudeau’s chairmanship advised the governor general to invoke the War Measures Act. The result was widespread deployment of Canadian Forces troops throughout Quebec and the suspension of habeas corpus, giving far-reaching powers of arrest to police.

The Trudeau government gave the appearance that martial law had been imposed. With far-reaching powers police arrested and detained, without bail, 497 individuals. All but 62 were later released without charges.

Four decades have passed since Trudeau imposed martial law on Canada and it has been 30 years since he nationalized Canada’s oil industry. But even south of the border the cataclysm still echoes. It gains a growing resonance as an American president unleashes his plans for a just society.

“The Obama election’s implications for us are possibly just as fundamental as was Trudeau’s for Canada,” said Michael Krauss, professor of Law at George Mason University. “What if we became Canada?”

I have bad news for Krauss; America is going down that same ruinous path with President Obama. It is hard to conclude otherwise, especially in light of Cuban dictator Fidel Castro declaring last month that the passage of American healthcare reform was "a miracle" and a major victory for Obama’s presidency.

It seems Obama is the kind of leader that Cuba can embrace. (Castro certainly had a close bond with Trudeau. Before he attended Trudeau’s state funeral in the autumn of 2000 he declared three days of mourning in Cuba.)

Just how far to the left President Obama will steer America remains to be seen, but the fact that America is seriously tilting to port is undeniable. Riding roughshod over the Constitution is just one step. Others include the president’s determination to grow government and redistribute the nation’s wealth.

Furthermore, it is naïve to think that Obama will be gone in less than three years. Many a Canadian, especially us out here in the West, believed Trudeau would be a one-term prime Minister. But Canadians got used to collecting Trudeau dollars. By the time he faced his first re-election in 1972 enough Canadians had bought into the prime Minister’s “Just Society” that he would go on to serve another 12 years.

Look for the Dollar to go Loonie
When Trudeau took office in 1968 the Canadian dollar was selling at par with its U.S. counterpart. By the time Trudeau left office in 1984 the Canadian dollar was selling for just 70 cents U.S. That was the Canadian dollar’s first significant devaluation in a century.

In fact, during the Trudeau years the Canadian dollar lost more than half of its purchasing power. Canadians got healthcare, but not one of them could say it was free.

The same scenario could unfold in the U.S., especially if the midterm elections don’t go the Republicans’ way next fall. It is amazing what the majority will sometimes accept and even encourage. I know because I have seen it happen. Not in Cuba… right here in Canada.

Action to take: Accumulate 1-ounce Canadian Gold Maple Leaf, American Gold Eagle and South African Gold Krugerrand coins.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The Sellout of America: Why Our Enemies are Thriving

The Russians are coming. No, T-72 tanks are not plowing through Poland headed for Paris. There is no need for that outdated Soviet doctrine. Not when Russia can patrol near our coastal waters and harvest our most strategic resource—petroleum.

While the Obama administration seems bent on banning offshore oil drilling on the outer continental shelf, Russia is filling the vacuum, building its energy wealth and stretching its strategic reach all the way to Cuba and the vast oil pools that lay inside the Gulf of Mexico.

The Kremlin’s aim to be the world’s dominant power hasn’t changed since the Soviets tried to smuggle first-strike nuclear warheads onto the island of Cuba. But unlike First Secretary Nikita Khrushchev, today’s supreme leader Vladimir Putin is not gunning to win the arms race. He is out to win the energy race. So far it has been no contest.

Last year marked a milestone for the United States. For the first time since World War II, we pumped less than 5 million barrels of oil per day. We pumped almost twice that much oil 30 years ago when Jimmy Carter was president.

While Carter handed over the Panama Canal, Obama’s mistakes will be far more devastating to the U.S.

“Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries,” wrote The New York Times.

“What’s more, for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about. Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction.”

Yet the Obama administration has blindly ignored the warnings. The president continues to tout clean energy over offshore oil, even though seven out of 10 Americans want to drill for it.

Obama’s position on offshore drilling is as cloudy as the deep warm waters of the Gulf. As a senator he opposed it. As a candidate, Obama seemed to support it. But as president, Obama has stifled efforts to expand it.

This month The Washington Post said it now knows the president’s true intentions: “Hidden deep within the president’s budget proposal released on Feb. 1 are numbers that reveal his true intentions. The budget shows that revenues collected from new offshore leasing will decline over the next five years—from $1.5 billion in 2009, to only $413 million in fiscal 2015. If the president planned on expanding offshore drilling, revenues would be increasing, not decreasing. This budget clearly indicates that he has no intention of opening additional areas to drilling off our nation’s coast.”

Enter Russia—a nuclear mega power with a growing choke-hold on fossil fuel supplies. Last summer Russian Deputy Prime Minister Igor Sechin signed four contracts securing exploration rights in Cuba’s economic zone in the Gulf.

Havana says there may be 20 billion barrels of oil along its coast. That’s the total remaining conventional oil reserves of the U.S.

The Cuban deal will cement the Kremlin as the dominant petroleum power in the world. Russia already has three times more oil reserves than the U.S. Russia also has the largest natural gas reserves in the world—four times more than Canada and eight times more than Saudi Arabia.

“Vladimir Putin’s Russia is assembling an economic machine powerful enough to force Europe, the U.S. and Asia to their knees,” wrote The First Post. “It does not involve uranium, explosives or suicide bombers, but the natural resources that power the global economy. Russia will soon exert such sway over the supply of oil and natural gas that the OPEC crisis of the mid-1970s could seem trivial.”

Half of Russia’s state revenues and more than one-third its exports are derived from petroleum. Clearly Putin isn’t worried about cleaning up the environment (just one reason world carbon reduction agreements are useless and dangerous), but in projecting power. To that end Russia has surpassed Saudi Arabia as the world’s number one oil producer. The Kremlin also has its hands on the kill-switch to critical natural gas supply lines to Europe and Asia.

Meanwhile America’s dependence on oil is growing just as its availability is shrinking. The last time the U.S. produced such little oil Truman was President. And I can’t find one oilman in 100 that thinks the decline in American oil production is going to be arrested. As one Canadian oil company president said to me: “U.S. production in the lower 48 is falling into a black hole.”

What the Kremlin understands and what the White House doesn’t is that there is nothing on the horizon to replace petroleum. In fact, every four years, the U.S. consumes a cubic mile of oil. This has the energy equivalent of:

  • Four of the giant Three Gorges dams, cranking at full capacity for 50 years.
  • More than 30,000 1.65-megawatt wind turbines, cranking for 50 years.
  • A whopping 100,000 1-megawatt coal-fired electric plants, going full-bore for 50 years.
  • Fifty-two giant nuclear electric plants, running at 100 percent capacity for 50 years.

There aren’t in enough windmills or solar panels now or in 20 years from now that will significantly offset this demand.

What It Means
America is headed for an unmitigated disaster. Russia is bent on becoming the dominant petro-power of the world. Putin has gone so far as to say his country is an “energy superpower” and he has repeatedly demonstrated he will use his nation’s growing energy wealth as a blunt instrument of Kremlin foreign policy.

While Obama fetters away opportunities to drill for more oil, Putin is busy outflanking America on all sides. Russia is busy building closer relations with Iran and Pakistan, America’s key enemy and ally on the War on Terror. And in our own hemisphere Putin is about to meet with Venezuelan President and Uncle Sam hater, Hugo Chavez.

As for Cuba and its oil, it is just the latest energy domino to fall. There will be many more as Russia aims to dominate America, not with armies but with oil.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Why Wall Street Hates Gold

Wall Street hates gold. In fact they hate it as much as government does.

The reason is simple: ordinary investors that count on gold don’t need Wall Street. They don’t need the slick stockbrokers, the puffed-up analysts or the aristocratic money managers. In the eyes of Wall Street gold owners didn’t contribute a red cent to the $20-plus billion in bonuses they got last year.

Twenty-billion dollars might seem like a mega-lottery, but Wall Street always wants more. Bonuses were bigger last year than the year before even though Wall Street almost hurtled the world into an economic dark age.

But Wall Street is scared. They understand they are living it up because of the Barack Obama Bonus Brigade.* Most of all they fear sanity just might be contagious; that more and more investors will be reluctant to throw their hard-earned savings into a marketplace that is overpriced and on the verge of collapse.

Little wonder that CNBC, The Wall Street Journal and the rest of the financial media hammer away at gold. They reiterate the Keynesian mantra that it is a barbarous relic and call it a vastly overpriced commodity whose bubble is about to burst.

“Talk of a Gold bubble over the past 6-9 months grows louder and louder,” writes The Market Oracle. “It is comical and a sign of desperation among those losing their grip on the levers of power and influence. I have never seen a bubble so heavily recognized and announced.”

It does seem strange that today Wall Street is clairvoyant about the billions of dollars invested in the gold market, even though a couple of years ago it was oblivious to the trillions of dollars at risk in the sub-prime lending market.

Of course gold-bashing is nothing new. I saw it when I was a kid and watched my dad, C.V., on the TV show Wall Street Week. It was 1976 and gold was trading for a little more than $100 per ounce. That didn’t stop the host, Louis Rukeyser from calling my dad a gold bug and ridiculing him for telling his subscribers to buy bullion.

But Rukeyser and the rest of the Wall Street establishment weren’t laughing near so hard four years later when the Dow Jones Industrial Average was trading at 800 while gold was fetching $800.

Dirt Cheap, But Not for Long
The last time gold was frothy you could swap an ounce of bullion for a single share in the Dow Jones Industrial Average. Today it takes about 10 ounces of gold to buy a single share in the Dow.

But just how expensive is gold these days? It turns out that no matter how you measure it, gold is cheap. The reason is because the dollar buys so little. Back in 1980 when I was graduating from college I sold 10 Krugerrands and bought myself a shiny new Pontiac Trans Am right off the showroom floor. Today I would need 30 Krugerrands to buy a comparable Chevy Camaro.

In fact, if you account for the dollar’s decline in purchasing power, bullion would trade today at nearly $2,500 to have the same value it had in 1980. And even if you think gold only spiked above $800 per ounce, and a much fairer top is $700, it would still have to trade at $2,000 in today’s money just to have the same relative value.

Finally, bubbles usually burst because of inflated supply and falling demand. Not much sign of that in the gold market.

According to a recently released report by The World Gold Council, overall investment in gold was 7 percent higher last year than in 2008. It seems incredible, but gold demand actually climbed despite rampant fears of deflation and a physical shortage of gold. Moreover, in 2009 total funds invested in all forms of gold were a whopping 20 percent higher than in 2008.

Yet even as demand for the Midas metal continues to grow, production isn’t keeping pace. Output of gold from South Africa, the United States, Australia and Canada has dwindled every year over the past decade.

These countries, which produced two-thirds of global gold production through the 1980s, now produce less than half of the gold mined.

Over the past decade big gold companies have grown not through exploration but via the purchase of reserves in the form of corporate buyouts. The truth is it is getting harder and more expensive to find gold.

“In all of history, only 161,000 tons of gold have been mined, barely enough to fill two Olympic-size swimming pools,” wrote National Geographic in January 2009. “Now the world’s richest deposits are fast being depleted, and new discoveries are rare. Gone are the hundred-mile-long gold reefs in South Africa or cherry-size nuggets in California. Most of the gold left to mine exists as traces buried in remote and fragile corners of the globe.”

When I was born some 50 years ago companies could get about 12 grams of gold for every ton of rock you pulled out of a mine. Today they have to mine four tons of rock to harvest that much gold.

So there doesn’t appear to be enough gold to satisfy demand, at least not at these prices. But there certainly has been an avalanche of money. Consider this: in the past half century the above ground levels of gold have doubled. Meanwhile M3, a broad measure of money, has risen from $300 billion to $10 trillion. In other words, there is twice the amount of gold as there was in 1960. But there are 30 times more dollars.

All of which leads me to think that Wall Street has it picture perfect once again; perfectly wrong. The real bubble is with paper assets. The only silver lining in any of it is that it will blow Wall Street to smithereens—right where it belongs.

Action to take: continue to accumulate gold. I’ve been telling subscribers this since October 2000 when I was writing Outstanding Investments. My stockbroker friends thought I was dead wrong then. They think I am dead wrong now. I’ve been getting a lot of last laughs and I expect to get a lot more.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

* Footnote: Last month New York State Comptroller Thomas DiNapoli admitted that Washington was responsible for lining Wall Street’s pockets with billions even as the rest of the country was mired in recession. “A lot of this (bonuses) is fueled by federal money,” DiNapoli said.

The Ides of March: What Obama’s Woes Will Do to Gold

“Sic semper tyrannis” (Thus always to tyrants). —Brutus, during the assassination of Julius Caesar.

In Shakespeare’s Julius Caesar, a soothsayer warns Caesar to “beware the Ides of March.” The warning did nothing to help Caesar, who was stabbed to death on the Senate floor. The principal conspirator against Caesar was Marcus Junius Brutus, Caesar’s most trusted ally.

Fast forward two millennia and we see another great empire is in trouble, and so, too, its leader.

Thankfully, democratic rulers aren’t murdered, they are voted out of office. Yet this President has almost three more years left in office, plenty of time to do more economic damage for a country and to lose every shred of confidence in a man once hailed as a visionary and a redeemer; the exact qualities that were bestowed upon Julius Caesar.

Caesar came to political prominence in 67 B.C. when he was elected to the Roman Senate. Over the next two decades he would become one of the most renowned of all generals. Eighteen years later he established himself as the sole dictator of the Roman Empire.

Caesar declared himself a man of the people and in 46 B.C. drafted a public letter outlining his goals. They included: “tranquility for Italy, peace for the provinces, and security for the Empire.”

History has declared Caesar did not have the time or means to complete his overly ambitious agenda which included resolving foreign conflicts, strengthening the middle class and resolving the debt crisis. It sounds all too familiar, with the exception that I find nothing about Caesar instituting Roman healthcare.

Historians do point out that Caesar’s goals and methods of governing alienated many of the nobles. For a time, that did not stop Caesar’s lackeys in the Senate from constantly voting him new honors. Unfortunately for Caesar, the Nobel Prize was not one of them, as it was created some 2,000 years later.

On March 15, 44 B.C., Caesar attended his last meeting. He ignored a warning and went to the Senate. Sixty conspirators, most of them Senators who had lost faith in his vision for rebuilding Rome, were waiting for him with concealed daggers. He was stabbed 23 times.

March Madness
What exactly the House and Senate will do to Mr. Obama’s grand plans remains to be seen. But one thing is certain: Mr. Obama has faced a winter of discontent.

According to a survey done by Rasmussen in March, only one in four Americans think the country is heading in the right direction. Other surveys this month show expectations for the nation’s short- and long-term economic future are gloomier than they have been at any time since President Obama took office.

Still, Obama supporters continue to harp on some silver linings among the dark economic clouds. Earlier this month, Senate Majority Leader Harry Reid (D-Nev.) called the latest job numbers proof that the economic recovery is underway, even though the unemployment rate is a whopping 9.7 percent and the true jobless number is close to double that.

“Today is a big day in America,” said Reid earlier this month. “Only 36,000 people lost their jobs today; which is really good.”

Reid seems like the kind of cheerleader the Titantic could have used: “Good news passengers! The ship isn’t sinking as fast as we feared!”

I suspect that Reid and other Obama loyalists will find that most Americans think such talk cheap. In the second half of March, 2010, The Fates may have already determined the President’s plight. The big question is: who will deliver the blow and what will be the result?

Bernanke Obama’s Brutus
In March Federal Reserve Chairman Ben Bernanke promised to end Quantitative Easing (a fancy term for stimulating the economy and funding deficits by running the printing presses). Some think that the Fed Chairman only wants to ensure his Senate reconfirmation. Others think it is a real commitment; that Bernanke is more loyal to the dollar than the President.

I don’t blame you if you are skeptical about Bernanke. Still, there is precedent for the Fed to put the country first. It happened in 1979 when President Carter appointed Paul Volcker as chairman of the Federal Reserve.

The economy then was much as it is now. Unemployment was soaring, confidence was disappearing and the dollar was in crisis. Yet Volcker put the nation first and the presidency second. He raised interest rates through the roof purposefully putting America into a terrible recession.

Volcker’s actions eventually saved the American economy and cost Jimmy Carter his bid to be reelected. But it was tough sledding. The Fed funds rate, which had averaged 11.2 percent in 1979, was raised by Volcker to a peak of 20 percent in June 1981. That same year inflation topped out at 13.5 percent, a fundamental which drove the price of gold from $280 per ounce when Volker was appointed to $850 per ounce just 18 months later.

Yet I am dubious that Bernanke will betray Obama. The Fed chairman seems much more like Arthur Burns than Paul Volcker.

Richard Nixon hurt the dollar primarily because he removed any link between the dollar and gold. After 1971 not even countries could exchange greenbacks for bullion. That gave Nixon, and all later presidents, the freedom to spend away. Because the dollar was the world’s international reserve currency, Washington basically believed that other countries had to like it or lump it.

Arthur Burns came along when it was still expected for the Fed to carry out its primary mission—to protect the integrity of the dollar. Instead, Burns acquiesced to Nixon’s war on poverty, the war in Vietnam and bid for reelection in 1972. It was a cavalcade of spending that carried on throughout the decade of the ‘70s.

“After finally winning the presidential election of 1968, Nixon named Burns to the Fed chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972,” wrote Mercury Rising.

“Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed’s influence, Burns and other Governors succumbed. Inflation resulted.”

According to American Thinker, it matters not if Bernanke is loyal to the President like Burns, or the dollar like Volcker; either way he “will be Obama’s Brutus.”

That is because like Rome, America is a weakened empire with no easy choices. Two trillion dollars that the Federal government needs this year underscores this truth.

Where such funds will come from remains very much in question. Foreigners are having second thoughts about financing America’s deficit, and China—the largest owner of Treasuries—has become a net seller of Uncle Sam bonds.

Very soon Treasury yields will have to rise to get the world to continue to finance Washington’s spending spree. So whether or not Bernanke wants it, or even likes it, interest rates are heading higher. That is bad news for the economy and for President Obama who will almost certainly not be re-elected.

Rising rates are, however, good news for the nation for bullion investors. Rising rates ensure falling stock and bond prices and a rush to gold. It happened during the Carter administration and it has already begun during Obama’s term.

Action to take: Sell all bond instruments and Big Board stocks and use the funds to buy bullion, either in physical form or blue-chip gold mining stocks.

As Shakespeare’s soothsayer warned, “Beware the ides of March.”

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Obama’s Real Agenda and Why the Stimulus is Money Well Spent

Last month marked the one-year anniversary of the stimulus bill, or the American Reinvestment and Recovery Act, passing into law.

It was to cost a whopping $787 billion. True to form it has actually cost more, some $862 billion.

The question remains: did it work, or at least did it work well enough to seed recovery? The Federal Reserve doesn’t believe it did.

According to the Globe & Mail, “We have an economic recovery that (Fed Chairman) Mr. Bernanke does not believe is self-sustaining.”

Then again, how could Bernanke think otherwise? Consider that:

  • The United States dollar continues to break down against other currencies while gold is near its all-time high. Meanwhile, prices for raw materials jumped 50 percent last year, more than doubling the advance in the S&P 500. That was their best year since 1971.
  • Mortgage applications for new homes are down 13 percent from last year and were down 30 percent the year before. This despite record low interest rates and housing prices that are cheaper than they have been in a generation.
  • Even with Soviet-style financing, many banks’ balance sheets remain weak. More than 140 banks failed last year. The potential exists for hundreds, perhaps even thousands of more banks to fail over the next two years.
  • U.S. unemployment is running at 9.7 percent and the true unemployment rate is more than double if you count those who have given up looking for work and the underemployed. According to The Atlantic that is the highest unemployment rate since the 1930s.

The only good news is that personal spending grew faster than expected in January by 0.5 percent—the fourth consecutive monthly rise. Wait… wasn’t it too much spending that got us in trouble in the first place?

Of course it was, but Americans are not spending frivolously says Keith Hembre, chief economist with First American Funds in Minneapolis. “This is not a credit binge. Bank loans continue to contract.”

According to Hembre, Americans are pulling cash out of their savings accounts just to get by.

But wait, our government has a solution. If you said more spending you are not clairvoyant, just cognizant.

Most of the Democrats simply can’t wait to spend enough to make the nation prosperous once again. Last summer, Nobel prize winner and liberal lapdog Paul Krugman was arguing that the country was in desperate need of another stimulus package.

“Getting another round of stimulus will be difficult. But it’s essential,” wrote Krugman. And if we don’t? Well Krugman and plenty in the Obama administration are ready to slam the Great Depression horn; that blaring siren that screams of soup lines, dust bowls and hobos.

Last year Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the “lessons of 1937.” That was the year that Franklin Delano Roosevelt started deficit spending in earnest.

There is a chorus from the Left that screams we need another stimulus package or we face Hell—an economic condition so severe that old-timers will recall the Great Depression with fondness.

One might argue that the Obama plan really hasn’t been given a chance. Heck, a trillion dollars here or there isn’t really enough to test a theory, is it?

On the other hand one might say that Obama’s plan has worked perfectly. Not because it has improved the economy, but because it accomplished exactly what it set out to do—to make the Federal government even fatter, greasier and more bloated than it was before. If that is the case then call it Mission Accomplished!

If you think I am crazy consider this: last year former labor secretary Robert Reich wrote on his blog that the recovery might have to rise from ashes like the Phoenix. Riech’s argument is that there can be no recovery until we find an entirely new model for the economy. He didn’t spell out what that model will be, but you can bet one thing—Big Government is a big part of it.

Ron Paul probably sums it up best: “The administration also claims that thousands of jobs have been created or saved by this massive spending bill, but these are just more government jobs, and counterproductive in the long run. Funding for the public sector necessarily comes at the expense of an overtaxed private economy… But the more the burden, the closer the government parasite comes to killing its host.” (You can read all of Dr. Paul’s comments in Whiskey and Gunpowder by clicking here.).

You can’t deny that the federal government is not only more indebted, but also bigger than ever. Last month The Washington Times wrote: “The era of big government has returned with a vengeance, in the form of the largest federal work force in modern history.”

According to the Obama administration the government will employ 2,150,000 employees this year, thousands more than when President Clinton declared that “the era of big government is over” in the 1990s. The growth is not coming to our overstressed military, but in the form of thousands of new civilian jobs.

I didn’t graduate from an Ivy League school like many in the Obama administration and I don’t even know who this year’s nominees are for the Nobel Prize, or even if they have nominees. But I do know that it’s named for Alfred Nobel—the guy who invented dynamite—and that is exactly what the Obama administration is playing with in trying to spend us toward prosperity.

Every government that has tried socialism has suffered for it.

I saw all I needed to see of it growing up in Canada. In the late 1960s Pierre Elliott Trudeau became Prime Minister. His Liberal government seeded socialism for 16 years.

Trudeau was convinced of the superiority of a socialist planned economy over free enterprise. He wrote in 1957, “As far as I go, it seems evident to me that the regime of free enterprise has shown itself incapable of adequately resolving problems posed in education, health, housing, full employment, etc.”

He made his vision a reality, instituting huge deficit spending, a massive welfare class and socialized medicine. And he damn near destroyed the Canadian dollar.

When Trudeau took office in 1968 the Canadian dollar was selling at par with its U.S. counterpart. By the time Trudeau left office in 1984 the Canadian dollar was selling for 70 cents U.S. That was the Canadian dollar’s first marked decline in 100 years! During the 16 years that Trudeau was Prime Minister the Canadian dollar lost more than half of its purchasing power.

Consider what would have happened to two Canadians: one who put $10,000 Canadian cash into his mattress and the other who bought gold in April 1968 when Trudeau was first elected. By June 1984, when Trudeau left office, the investor with the cash would have had the equivalent of $2,350 in constant 1968 dollars. Meanwhile our gold bug would have had $36,000—or 15 times more—in constant 1968 dollars.

If Obama’s vision of government is successful I have no doubt that the results will be even worse for the dollar and better for gold investors. It is ironic, but big creditors like China and Russia, who know better than anyone the ills of socialism, are selling off dollars and buying up resources.

They understand what Milton Friedman meant when he said: “If you put the Federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Commander in Chief?

“The United States needs a Commander in Chief not a professor of law.” –Sarah Palin.

I hate to be a stickler for presidential definitions especially after Bill Clinton said: “It depends on what the meaning of the word ‘is’ is.” But given President Obama’s woeful performance as America’s Commander in Chief, I think he needs to be educated on the meaning of war.

After all, it was Mr. Obama that said “We are at war,” earlier this year at a White House state dinner.

Yet it is clear that Mr. Obama may not understand what war really means. He is certainly not cut from the same cloth as Ike, nor does he have the fortitude of Reagan.

How do I know? Well the Obama administration openly talks with our adversaries; has terminated the F-22 air-superiority aircraft and has shown a fierce commitment to cutting America’s nuclear arsenal even as impending super-power—China—rises in the east.

A recent issue of Foreign Affairs warns that the world is becoming a more dangerous place. According to the magazine, America’s enemies see war far differently than the President does. “The United States’ overseas conflicts are limited wars only from the U.S. perspective; to adversaries, they are essential. It should not be surprising if they use every weapon at their disposal to stave off total defeat.”

All the while our President is muddling through the wars in Iraq and Afghanistan. In his State of the Union Address Mr. Obama barely made a mention of the Afghan conflict which will involve 100,000 U.S. troops in a war that has persisted for eight years.

Worst of all, the President is undermining morale in our military by putting the enemy on trial and allowing gays to serve openly in the military.

The President and his advisers have become adamant in trying Khalid Sheikh Mohammed and four fellow Guantanamo Bay detainees in New York.

With resistance building over plans to try the accused Sept. 11 mastermind in a civilian court in New York, White House officials are lobbying lawmakers to secure funding.

Thankfully there is opposition. A bipartisan group in Congress is pushing to cut off funding to prosecute Mohammed and other 9-11 co-conspirators in civilian courts.

It is hard to believe if Mr. Obama understands the nature of war when the enemy is afforded a trial and the rights provided within the Constitution of the very nation they are trying to destroy. Imagine if President Truman had put Tojo on trial in Honolulu for planning the attack on Pearl Harbor.

Andrew C. McCarthy believes it is ridiculous to try an enemy and thus provide them with the comforts and rights therein.

“A war is a war,” declared McCarthy. “A war is not a crime, and you don’t bring your enemies to a courthouse.”

McCarthy knows a thing or two about trying terrorists. Fifteen years ago he was front and center in the nation’s biggest terrorism trial as the chief prosecutor against a group led by a blind Egyptian sheik that plotted to blow-up the United Nations, as well as the Lincoln and Holland Tunnels.

The Trouble With Gays in the Military
Recently, President Obama renewed his commitment to allow gays to openly serve in the U.S. military. As a result, Senator Joe Lieberman (I-Conn.) has emerged as the Senate champion for trying to scrap limits on gay and lesbian service in the military.
 
Last week Lieberman announced that he would introduce a bill to repeal the ‘Don’t-Ask-Don’t-Tell’ policy that became law in 1993.

Lieberman said: “To exclude one group of Americans from serving in the armed forces is contrary to our fundamental principles as outlined in the Declaration of Independence, and weakens our defenses…”

Not so fast Joe. There are good reasons for keeping gays out of the military, the least of which isn’t combat effectiveness.

A decade ago one of my best friends, a Gulf War veteran and now a major in the National Guard explained it to me when I questioned him on the subject.

“Keeping gays out of combat has nothing to do with sex,” said my friend who served as an U.S. Army infantry captain in Operation Desert Storm. “It has to do with love.”

He explained that leading men, whether it be a squad, a platoon or a company, meant making tough decisions; decisions that put the men under one’s command in grave danger. Such orders are not easily given under the best of circumstances but are undertaken with the knowledge that what is tantamount is the success of a mission.

My friend—who by the way is a true-blue Democrat—went on to explain that he thought gays in the military would lead to relationships in the field; the kind of relationships that would endanger a mission and compromise the lives of men undertaking them.

To underscore his point my friend the Major asked: “Would you order the love of your life into a dangerous undertaking, even if you knew they were the best person for the job?”

As the 2008 Republican Party Platform correctly stated: "Military priorities and mission must determine personnel policies. Esprit and cohesion are necessary for military effectiveness and success on the battlefield.”

For Mr. Obama not to understand this combat necessity puts into question whether he has a fundamental understanding of the nature of war; enough to be our Commander in Chief.

I am not saying that one must have combat experience to be President. What I am saying is that a good President puts the nation ahead of what he thinks is good politics or what is politically correct.

John Stuart Mill was a 19th Century philosopher, economist and academic. Yet he understood the nature of war.

“War is an ugly thing, but not the ugliest of things,” said Mill. “The decayed and degraded state of moral and patriotic feeling which thinks that nothing is worth war is much worse. The person who has nothing for which he is willing to fight, nothing which is more important than his own personal safety, is a miserable creature and has no chance of being free unless made and kept so by the exertions of better men than himself.”

Other words about war that Mr. Obama might want to heed come from the former First Lady Barbara Bush: “War is not nice.”

Neither is it nice sitting back and watching the decline of the U.S. through weak leadership. This is especially true when it not only makes America more vulnerable to our enemies, but also accelerates our economic decline.

You may be asking, “What does any of this have to do with my financial future?” I am glad you inquired.

The U.S. dollar has been the reserve currency of the world for more than half a century. It gained this status not only because of the financial vitality of America but because the U.S. was the ultimate protector against tyranny.

But today America’s precarious economic situation, as well as the serious lack of leadership from its highest office, will only serve to weaken an already crumbling currency.

Action to take: Continue to accumulate hard assets, most important of which is physical gold, silver and platinum.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Why Wall Street Can’t See It

Youth is everywhere. The Barack Obama administration is packed with young academics. Big corporations enlist young people the way an army conducts a draft. Yet the greatest danger to your pocketbook and overall prosperity is the youth that invests America’s money.

According to Money Magazine, the average age of a stock fund manager is a tad over 30. Now that I am in my 50s that makes me more than a little alarmed. I remember when I was young; when I was a dumb college kid.          

Years ago disaster stalked me. At the time I was in my 20s, unaware of calamity until it was sprung upon me.

My dad and I motored towards the extreme end of Idaho’s Lake Coeur d’Alene.

After several arm-aching pulls on the starter cord we had the trolling engine sputtering along. We traced the outlines of the pristine bays and points along the southern shores.

It was a lazy afternoon; the calm before the storm. Over the rhythmic cough and choke of the outboard, from a distance of at least half a mile, I heard a squirrel skipping through the turquoise pines. How strange, I thought. I glanced towards shore and noticed an absolute deadness to the lake—a motionless mass of water stretching out like a giant sheet of stainless steel.

Above the tree-line I saw a monster: colossal cumulus black clouds—swirling and spinning—compressed upon the forest hills. Within this charcoal mass was a tiny grey vortex, tipped to its side, spinning downward, as if to reach out and pull us in.

Now my father was the calmest man I’ve ever known. In fact I had never seen him excited by Mother Nature, an amazing accomplishment for a man who spent most of his life on the brutal Canadian prairies. But this day was different.

As I pointed my finger towards the horizon the old man jumped to his feet and shoved a cigarette in his mouth.

I should have been on notice. The old man never swore and he never, ever panicked. But he was cursing like a sailor and tossing gear about as though we had just been called to general quarters. Before I could manage to reel in the second line, our cabin-cruiser was up and running.

“Our best out is to outrun this,” yelled the old man above the roar of the V-8.

Moments later the rain and wind pounced on the cove we had just evacuated.

After another 20 minutes the storm was closing fast. Across the lake stretched a line. It was surreal—on one side tranquility; on the other, chaos.

Dad yelled, “Get the lifejackets!”

Now that concerned me. The old man wasn’t a life jacket kind of guy. He had never so much as worn a seatbelt.

As I jumped below deck I remembered that I had forgotten to transfer the life jackets into the new boat (remember… dumb college kid).

As I stumbled up to tell the old man about the jackets the storm had closed to within a hundred yards of us. I was shocked by its enormity. The waves were huge. Only half home and we were about to be engulfed by a typhoon.

“Where are the jackets?”

I had to say something, so I lied. “I can’t find them.”

I will never forget the look on his face. It was a combination of rage and terror. For a moment, I didn’t know what to fear more—the old man or the storm.

“You idiot,” he screamed. “You can’t find them because you didn’t pack’em!”
 
By this time the storm had closed to within yards of us. For a few seconds it engulfed only our stern, turning the boat into a gigantic surfboard. Then it grabbed us whole.

All hell broke loose. A tremendous wave crashed over our starboard. Inside the cabin, dishes and groceries flew across the galley. We began taking on water.

Dad switched on the sump-pump, but the up-swell was beyond its capacity. The lake opened up into a giant trough.

I couldn’t help but notice that the boat was lower. Inside the cabin there was water.

Then it hit me: we had no life raft, no life jackets, not even a two-way radio. We were trapped in this damn boat. If it sank, so would we! We were 20 minutes from the marina. I didn’t know if we could make it, and there wasn’t a thing I could do about any of it.

Then, through the grace of God, the storm began to dissipate. By the skin of our teeth we reached the marina.

Others weren’t so lucky. We saw a 21-foot ski boat sink just outside the marina. Later an old timer told us that it was the worst storm he had seen in 60 years.

Two things still stick in my mind: The utter calm before the storm, and my idiotic complacency, even after its approach.

My fear is we face another financial storm, this one from a tsunami of dollars that have been created by the Federal Reserve and the Treasury Department.

Yet that has created a perfect storm for rampant inflation.

Over the past year the Obama administration and Wall Street have been urging banks to increase lending. However the banks have not yet lent out much of the new reserves that the Fed has created. Rather they have left these reserves on deposit.

That means that the velocity of all this new money (how fast it changes hands) has been slow. But that will change as soon as the banks begin lending in earnest which will likely happen this year.

It is little wonder, then, that Reuters reported last week that, “the ultra-rich are increasingly buying copper, nickel and other physical commodities to shield themselves from paper-money inflation.”

According to Ronald Wildmann, who manages three Basinvest funds from Zurich: "As a wealthy person, the worst that can happen to you is not that your relationship manager gives you bad advice. What is much more worrisome is when you wake up in the morning and you look out the window and paper money is worthless."

Wildmann is in his late 40s and is one of the few money managers that even sees the potential for an inflationary storm. The majority of fund mangers are a generation younger and so busy fishing for profits that they haven’t even looked towards the horizon.

But a financial squall is approaching just as surely as that lake storm struck my dad and me three decades ago. When it does, Big Board stocks and blue chip bonds will collapse. At the same time fortunes will be made in hard assets, especially gold and silver.

Action to take: I urge you to divest out of paper in all but the most special situations and buy shares in either blue chip gold and energy companies or physical precious metals.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Banker, Butcher, Spy: Who Our Government Bullies And Bribes to Make This Their Cashless Society

It was the girl with the dark hair. For a few seconds Winston was too paralyzed to move. Whether she was really an agent of the Thought Police, or simply an amateur spy actuated by officiousness, hardly mattered. It was enough that she was watching him.”
George Orwell, 1984

With just days to go and a congressional recess looming, lawmakers are scrambling to find a legislative solution to re-up government surveillance and intelligence-gathering powers that are expiring at the end of the month.

With national security shaping up to be a major issue this election cycle, both sides are under intense pressure to reauthorize three expiring provisions of the USA PATRIOT Act.

Already Senate Democratic leaders are moving toward including a one-year extension on the provisions in their jobs bill, which was expected to be introduced this week.

No one doubts that the world changed for the worse since 9/11. One way has been our own government’s suspicion and surveillance of the very people that elected it.

Of course Washington has been telling us for a decade that it has no choice, that it must spy on us for our own good. It is all part of the War on Terror.

It is worth noting that our government began spying on us in earnest a generation earlier. That time it was because of the War on Drugs.

* * * * 

It was a hot July day in 1990 and I needed a cold drink. The offices to the Myers’ newsletter were on the second floor the Old National Bank Building at the North Division Y on Division Street in Spokane, Wash. One of the perks of paying hefty rent in the new building was that the bank let us use their lunch room replete with cola and snack machines.

Moments after my quarters had plunked into the machine I had a cold can of Coca-Cola in my hands. On the way out of the lunch room I noticed a giant poster on the wall from the Department of the Treasury (see chart below).

Click on the image above to expand the view.

As you can see its pretense is to catch criminals involved in “narcotics trafficking.” See the mention on the bottom? It offers “substantial rewards for information leading to the seizure of currency and/or the arrest and conviction of individuals violating United States currency laws.”

In other words, beware of the kindly bank teller if you deal in cash for whatever reason. He or she has openly been bribed to spy for the Treasury Department, the Internal Revenue Department (IRS) and U.S. Customs to boot.

You can see that more than a decade before 9/11 our government was busying itself in spying on its citizens. And the biggest attack on our liberty isn’t on what kind of gun we can own, where we can smoke, or even what we search out on the Internet. It is the slow and insidious control of our currency. How much money we have, where we have it and how we move it has become a preoccupation of the Federal Government.

There was a time when there were $1,000 bills. That is no longer. A rapidly devaluing hundred dollar bill is the biggest unit of currency today (in 2010 a $100 bill has the purchasing power of a 1975 $20 bill).

Twenty five years ago you could buy and own U.S. Treasury bearer bonds. Unregistered, they avoided scores of red tape—they could be bought and sold literally overnight; or if necessary, kept in safe keeping away from prying eyes. They too are extinct.

There was a time when you could move money in and out of the country, no questions asked. You can’t do that anymore. For years anything over $10,000 going across the border must be reported.

Uncle Sam wants to know any transaction over $10,000. That law doesn’t just apply to banks or border agents. If you go into your Ford dealer tomorrow and plunk down $12,000 cash, it will be reported to the Feds. Not only that, but if you spend more than $10,000 cash at a car dealership within a year (bought two cars on two different occasions for $6,000 each), the dealer is responsible to report the total of both transactions. In effect, private business has been conscripted by the Federal Government to report on its customers. And the Federal Government’s heavy hand reaches beyond U.S. borders.

In the late 1990s I was driving from my home in Spokane to Calgary, Canada. At that time it was illegal to transport more than $10,000 currency out of the United States, but Canada had no such laws (that would come a few years later, no doubt under pressure from Washington). At the Kings Gate border in British Columbia the Canadian Customs Agent asked if I was carrying more than $10,000 cash.

“What do you care?” I asked.

This did not sit well with the young lady charged with protecting Canada.

“Are you going to tell me… or are we going to have to strip your car and your person?”

“The answer is no, but what I want to know is why are you asking me this? It is not against Canadian law for me to bring in any amount of currency, is it?”

“No,” she said, “it is not. But it is against U.S. law!”

To underscore what she was saying she pointed 75 yards to the U.S. Customs office welcoming southbound traffic.

“So what you are telling me is that you are not only a Canadian customs agent, but you are also acting at the behest of the United States government?”

I realized I was walking a razor thin line and in jeopardy of having my car torn apart. Fortunately she handed me my drivers license (the days before you had to have a passport) and without a word she motioned me to continue on my trip.

A couple of weeks ago I wrote to you about the War on Gold. What I have learned in the last few years is that our government is conducting a War on Cash. Washington despises cash because it is an instrument we can use to exercise our liberties without being monitored. Yet for non-criminals like you and me it is a disappearing tool. Fewer and fewer of us do business with currency any longer, leaving whatever commerce we have easily tracked and traced.

Yet just as criminals continue to have ready access to guns, they too have mountains of cash. There is almost $900 billion in circulation, four times the amount there was in 1990. Meanwhile there are only 300 million Americans. If the drug cartels and terrorists weren’t holding buckets of cash, every man, woman and child would have $3,000 stuffed in their pockets or mattresses. Even if you account for what the banks have on hand (which is surprisingly little), that is a ludicrous number.

Law abiding Americans are without the utility of cash and the inherent privacy it allows when conducting commerce. Yet the drug dealers and terrorists have stacks and stacks of currency on hand.

Today our government is able to track almost all of our transactions in this increasingly cashless and restricted society. Never mind the War on Drugs and the War on Terror. It seems to me that the real war is being conducted on the American people.

Obama’s Incompetence Has Left Israel Gunning for War

“(Obama) is too much Chamberlain and not enough Churchill.”–Chris Matthews, MSNBC.

President Obama has been in office more than a year, yet his administration’s lack of accomplish is startling.

Obamacare is DOA. The total budget is tipping towards $4 trillion per year and the federal deficit will hit a record $1.6 trillion this year.

Yet all this and an unemployment rate of almost 10 percent will not prove to be the President’s biggest blunder. That distinction will likely go to his foreign policy failures whose fruition leaves Israel set to wage war, energy prices and the dollar be damned.

It almost happened once before, almost three decades ago when I was just getting started in this business.

The morning traffic that the growing city of Spokane could muster was bottlenecked on Monroe Street as I headed south towards downtown and my dad’s offices at Myers’ Finance & Energy. It was June and the morning sun was pouring into my old Pontiac whose only climate control was rolling down the windows.

I fussed through the push-buttons on the old radio until I hit the news channel. The headline blared out of the single speaker on the dashboard: “Israeli jets have struck and apparently destroyed Iraq’s nuclear reactor.”

It was the coups de grâce in Saddam Hussein’s nuclear ambitions and the world was fortunate that Israel was able to pull it off—even if the markets were spooked. The attack and the near miss on a broader war helped push bullion prices up more than 20 percent that summer.

It is no secret that Israel is looking to launch a similar strike, this time on Iran’s nuclear processing facility.

But Iran is no Iraq. Besides the fact that Iran will not be caught flat-footed there is the fact that Iran has a far more capable military than what Iraq had 29 years ago.

There is also the fact that Israel won’t have a strategic ally if it executes another attack on a Muslim reactor. Iran cooperated with Israel during its attack on Iraq’s Osirak reactor, providing the Israeli air force with maps and other tactical information.

“There is no guarantee that the Iranian nuclear facilities would be eliminated. Iran could be expected to have learned the lessons exposed by the experiences of both Iraq in 1981 and Syria in 2007, when Israel destroyed their suspected nuclear facilities,” writes the Feb. 3, Sydney Morning Herald. “One would expect Iran to have located many of its nuclear facilities either deep underground or within the mountains to reduce their vulnerability to that type of attack.”

Not only can Iran repulse such an attack on its nuclear facilities but it can threaten the entire region in ways that Saddam Hussein could only dream off.

Iran Captures the High Ground

Last year Iran announced that it had successfully launched its first domestically produced satellite into orbit using an Iranian-built rocket. Tehran proclaimed that “the official presence of the Islamic Republic was registered in space.”

That rocket launch shows that Iran is now able to gather its own satellite intelligence and demonstrates the strides the country has made in rocket technology—the kind of rockets that can be used in a first strike on any of its neighbors.

Furthermore, Iran is working on a second nuclear power plant. It is conceivable that Israel might be successful in knocking out one of the reactors. The other would be left intact and able to develop nuclear weapons after a protracted stand-off. That sets up the possibility for the region’s two super-powers to go, as Slim Pickens said in the movie, Dr. Strangelove: “Toe to toe, nuclear combat.”

America’s Lack of Leadership

So what is the Obama administration doing? It is playing peacemaker and appeaser.

Early in his administration Obama had said he would give the Iranians until the end of 2009 to change their policy on nuclear weapons development. But a year later the Iranians continue with plans to develop a nuclear warhead.

As England did with Hitler, so far America has focused on a diplomatic solution to the “Iran problem.” The Obama administration wants to bring together a coalition that will impose what it calls “crippling economic sanctions” on the Iranians. The most decisive would be stopping Iran’s gasoline imports. But such sanctions are now unlikely as China and Russia have made it clear they will not participate.

Last week Vice President Joe Biden launched a blistering attack on Iran’s hard-line leaders, claiming they were “sowing the seeds of their own destruction.”

Biden’s comments came days after the United States sent more warships to the Gulf and pledged to America’s most important allies to increase its missile defense systems in the region. In other words, the administration is desperately trying to use tough talk and an unproven missile shield to protect the world’s strategic oil supplies in Kuwait, the United Arab Emirates and Saudi Arabia.
 
In the face of the greatest threat of nuclear war since the Cuban Missile Crisis, the Obama administration is launching angry words while trying to build walls to protect its allies. If it reminds you of Neville Chamberlain, you are not alone.

“If you want to compare Obama in any way, compare him to Neville Chamberlain. He says we’re going to have peace in our time,” commented Rush Limbaugh.

In part the U.S. is playing peacekeeper because it is in no position to begin another conflict. Problems in Iraq are far from over. In fact, civil war may be looming. Kurdish and Iraqi forces are said to be near the brink of a war.

Last week the Pentagon made an announcement underscoring why President Obama is so quick to look for diplomatic solutions. The Pentagon flatly stated that the U.S. is to abandon its doctrine of always being ready to fight two simultaneous-conventional wars.

This message has not been lost on Israel. If the past 60 years of history have demonstrated anything it is that the Jewish state will use its military as a first option.

When Israel successfully executed its attack on Iraq in 1981 it helped push gold prices from $390 to $463 per ounce. A strike now that is less than a resounding success could push bullion prices dramatically higher, perhaps in the $1,500 to $1,700 per ounce range. I firmly believe this because the summer of 1981 gold price spike happened when bullion was in a withering bear market. Today the Midas metal is in the midst of one of its biggest bull markets ever.

Money market funds are currently paying an average return of less than 1 percent. That is the smallest return that money markets have ever paid. Consider the fact that at this rate, it will take more than 500 years to double your money.

I believe we are at the brink of a Middle East war at a time when Washington is proving to be impotent with the economy and foreign relations. Add to it the crippling downward momentum of the dollar and you have what I believe is every reason to get out of cash and into energy investments and gold.

Action to take: Sell-off all fixed return investments (bonds) other than short-term Treasury bills and add to your holdings of physical gold. I like 1-ounce U.S. American Eagle coins as well as 1-oz. Canadian Maple Leaf and South African Krugerrand coins.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The War on Gold: A Personal Account

“Open up,” demanded a man.

I rose from the breakfast table. It was Sept. 19, 1974. I caught a glimpse of the flashing lights bouncing off the premature frost that clung to our trees.

Three cruisers from the Royal Canadian Mounted Police (RCMP) had converged on our small farm south of Calgary, Canada.

“What the hell is going on?” my father C.V. bellowed from down the hall.

I was 15 and filled with dread, fear and fascination. “The cops are here!”

My old man whipped-open the door. Five RCMP officers and a plainclothes tax agent burst into our home.

At the same moment in Calgary the Mounties and Revenue Canada raided my dad’s offices, his lawyer’s office and his bank branch.

Was my father a kidnapper or a bank robber? Hardly. Yet in the eyes of the government he was something much worse. He was a Libertarian and a gold-bug! Worst of all, he had been buying gold for his United States subscribers at a time when it was illegal for them to own it (more about this in a moment).

That morning agents were hunting down documents on my dad and his newsletter, Myers’ Finance & Energy (MFE). But they couldn’t touch his company, Interpublishing, a bona fide operation in Switzerland paying taxes in Switzerland.

Interpublishing was a legitimate offshore company set up by my dad’s accountants. Interpublishing was not a shell company. In fact it was organized the same way as the Canadian Pacific Railway Company, one of Canada’s oldest and largest public companies.

The Midas Mess
The Mounties were out to get their man. It had to do with Americans buying and owning gold and my dad acting as their agent. This had some in the U.S. Treasury Department very upset.

You see at that time it was illegal for Americans to own gold although most believed the law was unconstitutional, and indeed, the U.S. Treasury had become aware of purchases by U.S. citizens.

Meanwhile gold ownership was fully legal in Canada. So my father had started buying gold for any subscribers that could put cash on the barrelhead; charging only a small commission and storage fee.

C.V. wrote in MFE: “We don’t care if you are Chinese, Burmese, Russian or American. Gold ownership is legal in Canada; put the money on our desk and we will buy you the gold. Your account will be numbered but your corresponding identity will be kept secret in Switzerland.”

After the tax men had recorded every check which had been paid by the Americans for this gold they still did not have the owner’s names. And Washington wanted names.

It turned out they had just the instrument to get them. It’s called blackmail. You see, if the Americans couldn’t come forward to claim their gold it could be held hostage to any assessment the Tax Department might like to issue against my dad.

The hope was that mounting pressure from the gold owners would force my dad and the Swiss company to pay the assessment—right or wrong. My dad said it was like hijacking; the only difference being hijackers held third party lives while the tax men held third party money.

Americans Demand their Gold

Then good fortune shined. U.S. gold ownership became legal on Dec. 31, 1974. This meant that owners could come forward. But it meant much more. For if the claimants identified themselves, the Tax Department, having all the documents and keys, had automatically become the legal custodian to the gold and fully responsible, just as Interpublishing had been, to turn it over to the rightful owners upon demand.

The safety deposit keys and the identification list were sent via Teletype from Switzerland and turned over to the Tax Department. Now the tax men not only had the gold, they had everything, including the responsibility.

At this point they were holding a hot potato. Rentals on safety deposit boxes began coming due. Revenue Canada had to decide if it was going to bill the clients just as Interpublishing had been doing, or if it was going to pay the rentals itself? And what if an owner sent in an order to sell? Was Revenue Canada legally obligated to sell it and forward the check?

Like it or not the tax man was in the gold business.

My father advised all clients to write Revenue Canada demanding that they execute the delivery of their wholly-owned gold post-haste.

The Gold is Freed, the Gold-Bug Imprisoned
Things got pretty hot. The gold owners had to be answered. A huge counting operation was arranged. It included a representative of Interpublishing in Calgary, the company’s lawyers, the Tax Department, officials of the bank and two security guards. All boxes were opened, counted and recorded. In all there was $4 million worth of bullion!

When the count was finished it was found that every claimant’s gold was separately wrapped. Not a coin was missing. None belonged to C.V. Myers or Interpublishing.

Falling prices spurred American owners to action. Through a Calgary law firm they launched an action against Revenue Canada and the individuals they claimed had acted beyond their authority in withholding from them their rightful property.

The deadlock broke in March 1975, when the Supreme Court of Alberta admonished Revenue Canada and ordered the return of each and every ounce of gold to my dad’s clients. No damages were paid: there was not even an apology.

Norman Stone wrote a book about the case titled: Unbridled Bureaucracy in Canada, The Bizarre Case of C.V. Myers.

Stone concluded that Canada’s tax department had acted on orders, not from Ottawa, but from Washington. Furthermore wrote Stone, “The capitulation forced by the court left the taxmen (sic) red-faced, angry and vengeful. Talk among the personnel in the Department was funneled back: Get Myers!”

It didn’t take long. I was finishing up my junior year in high school. The old man and I pulled up to his parking space outside his office in late spring 1975. As we got out of the car door two plainclothes agents blocked his way.

“C.V. Myers?” asked the cop.

“Yes.”

“You are under arrest.”

“What for?”

“For evasion of taxes. I must warn you that you don’t have to speak and anything you say may be used against you.”

The cops cuffed my old man right then and there. I was dumbfounded. As the back door on the cruiser was being closed he yelled to me, “Call my lawyers, I am under arrest and on my way to jail.”

Tale of Two Trials
The charge was evasion on $1.8 million in income, exactly the same amount which had been assessed Interpublishing eight months before.

Later that day dad got out on $100,000 bail. But the real cost of urging Americans to buy and hold gold was yet to be announced.

Over the next two years my dad would face two trials. In the first one he was fully acquitted. The second case—a trial de nova (double jeopardy, which was later eliminated by the Canadian Constitution) found my dad guilty and sentenced him to two years plus a day. He was given hard time, especially for a man who was in his 70s.

After my mother died my dad stood over her casket. He was weeping softly as he held one of her hands between his handcuffed two. Behind him stood an impatient corrections officer, telling my dad to hurry, that he had to get him back to his prison cell. He led my dad away just as a young girl started singing my mother’s favorite song: Amazing Grace. My 8-year-old nephew began to sob. Our family mourned in quiet devastation.

But all was not lost. Word of the injustice began to spread. For example the late Congressman Larry McDonald and Congressman Ron Paul urged Ottawa to release my father. And there were editorials in the press condemning the sentence and calling my dad a political prisoner. Colleagues like Richard Russell, Harry Schultz and Jim Dines began writing the Prime Minister and Members of Parliament.

After my dad was diagnosed with liver cancer he was released from Bowden Federal Penitentiary. Less than two years later he died in Loma Linda, Calif., a free but broken man.

Gold had given my dad a sterling reputation, a loyal following and a small fortune. But in the end he paid a terrible price.

What was done to just one individual illustrates what lengths government will go to shut-up its opponents and enforce its will. I know, I was there; a witness to the war on gold.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Nero Once Fiddled, Now Obama is Manning the Printing Presses

“To Rome said Nero: ‘If to smoke you turn I shall not cease to fiddle while you burn.’” –Ambrose Bierce

For President Obama it has been a dismal year. He cannot claim victory on even a single one of his big four agendas: healthcare, the economy, the war or the environment. It seems for every step forward the Obama administration has taken two steps back.

Before you agree to wholeheartedly embrace this rumbling disaster, take note that Obama’s failures, even if they extend just another three years, are the nation’s failures and there will be consequences thrust upon us all.

Meanwhile Obama’s approval ratings continue to tank. At the crucial 100-day mark of his presidency in April 2009, 63 percent of those polled believed the President had accomplished a “great deal.” His overall approval rating, according to Real Clear Politics’ RCP Average, now stands at 49.6 percent, with 44.9 percent saying they disapprove.

With confidence in the leadership evaporating, the economy is gingerly perched on a precipice. At the same time the stock market has lost its upward momentum and could be susceptible to another crash.

“Despite the rebound of the stock market and the return to huge bonuses on Wall Street, most Americans remain mired in debt and millions of them are living in depression-like conditions,” says The Star.com. “The economy has come back far enough to reassure the wealthy and the corporate elites that things ought to return to pre-crash ways and that there is no need for radical measures of the kind they were prepared to accept during the great bailouts a year ago.”

The economy is so weak that one adult in eight and one child in four needs food stamps. Wall Street has so far ignored the three-legged table that is our economy, but perhaps not much longer.

Bear Still on the Prowl
In January the Federal Reserve reported that commercial real estate losses could reach 45 percent this year. The result of this is $1.5 trillion in commercial loans that could default.

It gets worse. Option adjustable rate mortgages have a gun at their head, with $29 billion recast higher at the end of 2009, followed by another $67 billion in 2010. Barclays Capital announced, “We expect 81% of the option ARMs originated in 2007 to default.”

If you want to know how fast this will sink Big Board stocks ask yourself this—how long does it take a gaggle of money managers to say, “Titanic?”

To date Wall Street is bragging about corporate earnings that “are not as bad as expected” and my favorite, “lower than expected” inflation. Whatever happened to the days of Ronald Reagan and Paul Volcker when any inflation was bad? That inflation could be worse is like your doctor telling you that your cancer is spreading, but cheer up… it’s not spreading as fast as he anticipated.

The Obama administration has been very good at only two things: expanding the breadth of the federal government and increasing the amount of dollars.

“What we don’t know yet is… whether we have big government or small government; they’re more interested in whether we have a smart, effective government,” said the President just before his inauguration.

So far so bad says the January/February issue of The Atlantic in its cover story. “A business organization as inflexible at the U.S. Congress would have a major Whale Oil Division; a military unit would be mainly fusiliers and cavalry,” decries the magazine, adding, “The American tragedy of the early 21st Century; a vital and self-renewing culture that attracts the world’s talent; and a governing system that increasingly looks like a joke.”

Part of the problem for the Democrats is that they subscribe to the dogma of Franklin Delano Roosevelt, that big government can dictate prosperity. What they will learn instead is that more money in and of itself is not more wealth.

Rome’s Spectacular Rise and Inflationary Fall
The god emperors of Rome constructed their empire by implementing hard money. It financed the greatest realm the world had ever experienced.

The hard money was paid out to its armies which in turn conquered most of the ancient world. Jack Weatherford explains in his book, The History of Money, “Rome’s fame and glory came from the military and from conquest, and their riches, too, derived much more from the achievements of the army than from those of the merchants.”

As long as Rome’s legions conquered new lands, the empire thrived. But each new occupation required ever greater resources. Around 130 B.C., Rome occupied the kingdom of Pergamum. In a few years, Rome’s spending doubled from 25 million denarri (a Roman silver coin) to 50 million.

By 63 B.C., the budget grew to 75 million denarri, and spending was beginning to spin out of control. Vast strategic ambitions and social expenditures were beginning to mount.

When Augustus siezed the throne Rome was at its apex, spending rose to an astonishing 250 million denarri or 10 times what it had been 60 years earlier.

By the time the Empire had conquered Europe the cost of its army vastly exceeded the treasure it was repatriating.

Yet spending continued to climb even as revenues declined. Sound familiar?

A string of emperors grasped at an immediate solution. They began to re-mint new money with less and less silver in it.

To pay for the rebuilding of Rome after it burned Nero reduced the silver content in the denarri by a whopping 90 percent! Before long confidence in Roman money began to collapse. Eventually the Empire imploded, crushed beneath its weighty ambitions, with a mountain of debt and a debased currency.

The New Romans
President Obama and the Federal Reserve have a much easier time of opting for inflation than Nero did. Our leaders don’t have to re-mint debased coins or even overwork printing presses. Instead they can create money out of thin air with a keystroke.

Last summer the Wall Street Journal wrote that the U.S. government has been, “flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn’t put money directly into the stock market but he didn’t have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear… The dollars he cranked out didn’t go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.”

The problem is that the Obama/Bernanke bull can’t last. The creation of money is a zero sum game and alone it does not revive a fundamentally weak economy. And unless the economy itself improves—beginning with greater confidence in the dollar—the stock market is bound for a serious fall.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The Deep Truth About Oil and the Gulf of Mexico

In the time it takes you to read this story Americans will have gulped down 200,000 barrels of oil. From that total 120,000 barrels will have been imported, much of it from the Persian Gulf; a region that harbors a growing hatred of the United States.

This helps explain why Big Oil is making its last stand hundreds of miles out in some very deep waters.

Consider Chevron Corp., the world’s fifth largest publicly traded oil company. It is operating an oil platform in 4,300 feet of water far out in the Gulf of Mexico. It’s called the Clear Leader, and aboard it sunburned roughnecks are drilling through nearly five miles of ocean bedrock.

Some 200 miles due south of New Orleans Chevron has spent 10 years and a whopping $2.7 billion for this project. This is the cost of running a drill and casing more than 30,000 feet through earth and ocean, the same distance that an airliner flies above the earth.

Deep Gulf Oil Rig Map

Chevron will spend billions more and in the end, even with all the high-tech in the world, there are no guarantees that its deep-water experiment will hit pay-dirt. In fact there is less than a 50/50 chance that Chevron’s latest deep-sea adventure will yield anything. Still Chevron and their brethren don’t have a choice.

The Wall Street Journal sums up the situation: “Big easily tapped oil fields close to shore have become off-limits. Western oil companies have been kicked out of much of the Middle East in recent decades, had assets seized in Venezuela and seen much of the U.S. roped off because of environmental regulations. Their access in Iran is limited by sanctions, in Russia by curbs on foreign investment, in Iraq by violence.”

Remembering the Days of Wine and Rigs
I have never met a group that exudes more bravado than wildcatters explaining their latest project. But over the past decade that kind of confidence in exploration has evaporated. In fact the mood in meccas like Calgary and Dallas has turned downright dour. The industry understands that the conventional oil opportunities are drying up.

To understand what is happening with oil think of a bell curve. On the upside of the curve, as production is increasing, exploration and production costs are pretty cheap. But after you have hit the top of the curve and are heading down, it gets harder to find oil, and oil that is found costs more to drill and cap.

To understand the importance of being on the downside of the curve, consider that it took 4.5 billion years for the earth to give us 2 trillion barrels of oil. Since 1886, when the first well was capped, we have used up half of all our inheritance. We have long since past peak discovery rates and in 2008 we hit peak oil production.

The Micro and Macro Economics of Oil
For a specific oil field the key event is not when it runs dry, but the period after production peaks. It is at that time that the field yields less and each barrel pumped costs more.

It is the same dynamic that is working at a global scale. What jars prices higher is not when the oil runs dry, but after oil production has peaked, especially as demand and population are rising.

Consider that world per capita oil production topped out in 1979 and has been in decline ever since. The peak in volume of total world oil production is upon us even as the demand for oil is increasing rapidly.

Globally, petroleum discovery rates peaked during Ed Sullivan’s heyday. In fact, from 1960 to 1980, 600 billion barrels of oil were found. Since 1990 fewer than 250 billion barrels have been discovered.

Despite all our technology and knowledge, the industry is finding oil at less than half the rate of 50 years ago. And the oil people I’ve spoken to believe that less than 100 billion barrels will be discovered this decade.

To understand just how bad this imbalance is, consider that for every new barrel of oil we find the world will consume eight barrels. When my father was publishing OilWeek Magazine 50 years ago that ratio was just the opposite.

Just as individual wells within a field peak at different times, so do different regions of the world. The dilemma that the Obama administration faces, and the real reason the U.S. is embedded in the Middle East, is that U.S. oil production peaked three decades ago and has been in decline ever since. We are pumping less than 5 million barrels per day, or half as much oil as the nation produced when Jimmy Carter gave his fireside chats (see U.S. Oil Production Chart).

U.S. Oil Production Chart

The Persian Gulf has become the epicenter for petroleum as the once rich oil veins in Mexico and the North Sea bleed dry.

The only land with substantial conventional oil reserves is in the Middle East. Iran, Iraq, Saudi Arabia and Kuwait hold nearly two-thirds of the world’s oil and nearly all of the world’s remaining cheap oil.

What do I mean by cheap oil? Compare Ghawar—a single mega-elephant field in Saudi Arabia—to the deep waters in the Gulf of Mexico. Both have billions of barrels of oil. But it costs $2 per barrel to pump oil out of Ghawar while it costs more than $15 per barrel to deliver oil from the Gulf.

"A lot of people can get the very easy oil," says George Kirkland, Chevron’s vice chairman. "There’s just not a lot of it left."

As the once-rich fields in the Americas and North Sea are depleted, the U.S. becomes more and more dependent on Middle East oil.

While the amount of oil available may be shrinking, the world’s need for it clearly isn’t. China’s and India’s demand for petroleum continues to rise even in the face of a global recession.

Outlook for Oil
As I mentioned in my Forecast for 2010, energy prices may pause at these levels. Oil has already recovered above $80 per barrel. That’s more than twice as high as it traded 13 months ago. The truth is oil would be back above $100 per barrel except for lingering fears of deflation.

However it is beginning to look like the Bernanke bailouts will offset a depression. But I have to tell you, I wake up anxious each weekday morning and the first thing I do is check the business channel. I can’t seem to shake the feeling that another shoe may drop. Still, I am cautiously optimistic about oil prices and oil stocks.

A Bet worth Taking
The Gulf of Mexico won’t change America’s energy woes. It will however enrich investors who buy into the right plays. I think the best opportunity of the group is Anadarko Petroleum Corp. (NYSE, APC, $66.31).

Anadarko is one of the largest independent oil and natural gas exploration and production companies in the world. It has 2.28 billion barrels of oil equivalent in proven reserves.
Anadarko Petroleum Corp. Stock Chart

Anadarko is also the largest independent deepwater producer in the Gulf of Mexico. It has discovered 30 fields in the Gulf and has infrastructure which includes 11 hubs and more than 50 sub-sea wells. This year the company will explore its extensive acreage that has been accumulated in some of the richest regions in the Gulf.

To learn more about Anadarko’s projects in the Gulf of Mexico, you can go to the company’s fact sheet here.

I like the leverage we get with Anadarko that frankly isn’t available with the large multinationals like Chevron. Anadarko has the properties, technology and expertise to strike it rich in the Gulf and it doesn’t carry all the excess baggage that burdens the multinationals.

Action to take: Call your stock broker and buy Anadarko Petroleum (NYSE, APC) at market.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

America’s Hundred Years War and What it Means for Your Bottom Dollar

A new decade arrived and the world woke up to another round of Islamic extremism.*

Last week President Barack Obama held a White House inquest into the intelligence failures that saw a man try to bring a jet down over Detroit on Christmas day.

Meanwhile the headline being pumped out by the world’s news sources reads: Yemen Jihad!

If Iraq and Afghanistan weren’t bad enough, now we have to worry about Yemen. These are getting to be trying times—especially if you are like me and have to use Google to find exactly where Yemen is.

If there is one thing aplenty these days it is information, and the above map, courtesy of the Internet, shows Yemen at the heel of the Saudi boot. That puts it pretty much at the epicenter of the Muslim world (shaded in green).

Of course, if you yearn for the return of cheap gasoline you will notice that Yemen is also dangerously close to the House of Saud and its elephant oilfields.

So what, you say? Yemen is just one more speed-bump in America’s 21st Century Autobahn.

Perhaps, but take note that the speed-bumps are starting to pile up, and if the idea of another Hundred Years War seems ridiculous, consider that the United States has already been fighting Muslim extremists since Oct. 23, 1983. On that day an organization calling itself the Islamic Jihad blew-up a Marine Corps barracks in Lebanon killing 299 U.S. servicemen. We have had to live with Islam and the radicals in it ever since.

More than a trillion dollars waged so far
All these years the U.S. has been involved in costly warfare in places like Kuwait, Somalia, Bosnia, Kosovo, Iraq and Afghanistan. And before we engage another enemy that happens to border on our most important strategic ally, Saudi Arabia, we might want to take stock of how successful these operations have been.

According to George Friedman in his new book, The Next 100 Years, A Forecast for the 21st Century: “The (Islamic) world is more fragmented then ever. U.S. defeat or stalemate in Iraq and Afghanistan is the likely outcome, and both wars will appear to have ended badly for the United States.”

One thing is for certain, these wars will have ended expensively.

According to The National Priorities Project, $950 billion dollars has been allocated to the wars in Iraq and Afghanistan. “In addition to this approved amount, the FY2010 budget shows a $130 billion request for more war spending. This would bring total war spending in Iraq and Afghanistan to more than $1 trillion,” The Project states.

In fact, you can check out the accumulating Cost of War Clock at: http://www.nationalpriorities.org/costofwar_home.

It is starting to appear that there is no end in sight for the bleeding of both men and money in this fight. That is at the crux of Washington’s bankrupt foreign policy. Already the war in Iraq alone has exceeded the inflation-adjusted cost of fighting in Vietnam. And that may be a gross underestimation.

The Washington Post says, “By the time you add in the costs hidden in the defense budget, the money we’ll have to spend to help future veterans, and money to refurbish a military whose equipment and materiel have been greatly depleted, the total tab to the federal government will almost surely exceed $1.5 trillion.”

If so, then the U.S. has spent more than $2 trillion in an attempt to re-shape the Muslim world. That is about half of what the U.S. spent in constant dollars to wage and win World War II.

Keep in mind that World War II paid huge dividends to America. It cemented it as the world’s largest superpower and allowed it to shape Western Europe and much of Asia into trade-friendly democracies.

Reconstruction loans and meeting soaring consumer demand from across the Pacific and the Atlantic created an unparrelled boon for U.S. businesses.

Fighting the extremists comes down to oil
Today American conflicts are creating more uncertainty than certainty, greater resentment than goodwill.

So the question resounds: why doesn’t America pick-up and leave the Muslims to themselves? The answer is simple: the U.S. must have future access to Arab oil.

All you have to do is consider the facts:

  • The total remaining conventional oil on the planet is less than 1 trillion barrels. That is about half of the earth’s original endowment.
  • The world is currently burning 80 million barrels per day. At the current rate there will be only enough oil to sustain the planet another 3 decades.
  • America makes up less than 5 percent of the world’s population but consumes more than 25 percent of the world’s oil. This is an especially bleak equation when you consider that the last conventional elephant oilfield in North America was discovered more than four decades ago.
  • The plum but so far undiscovered oilfields in the world lay beneath the shifting sands of the Middle East.

Unfortunately war expenditures, as well as a bevy of social spending (a.k.a. bailouts) by Washington, are putting a noose around the dollar’s neck. Our federal government has put us in harm’s way of not only Muslim extremists, but also a mounting debt crisis—a combination that could cripple the greenback and send oil prices soaring.

Terrible decade for the dollar
As the U.S. Dollar Index graph below shows, the greenback has been falling at a steady rate since 9/11.

In 2001 the U.S. dollar was trading at 120 against a basket of other currencies. Since then it has been spiraling down, the only interruption was during the economic crisis in late 2008 which spawned deflationary fears and created only temporary reprieve for the buck.

But having failed at that rally the dollar is testing historic lows. Technically a break under 72—not all that far below current levels—could be catastrophic for the dollar.

To date the Pentagon seems to have not learned a single lesson from Vietnam. More than a generation later, war planners and politicians are still unwilling to do whatever it takes—yes even the nuclear option—to kill and capture Osama bin Laden and his henchmen. Each failure by the U.S. to end terror against its own people only emboldens the jihadist radicals which include members of Iran and Pakistan’s leadership.

That is bad news for the country and for the greenback.

Action to take: continue to accumulate blue chip petroleum stocks, including holdings in Suncor Energy Corp (NYSE: SU), which is heavily invested in Canada’s oils sands project.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

*Since there was no year zero, the second decade of the 21st Century actually begins next January.

Investment Forecast for 2010: The Dollar’s Demise Sets the Table

The air was stifling. It was thick with dust and hung in clouds through the sweltering corridors. I was 7,000 feet deep in a Transvaal gold mine.

Worse than the heat was the noise. I had to yell to my guide, the chief economist for JCI Mines.

I cupped my hands to make a horn, and over the roar of tractor engines and jackhammer drills I yelled: “What do you see for gold next year?”

My Afrikaner escort shouted over the din: “You tell me what the dollar does and I will tell you what gold does!”

It just so happened that the year was 1990 and the U.S. greenback was about to make one of its biggest bull runs ever. The result was a bear market in bullion that took the price of gold all the way down to $252 per ounce.

Today, with the price of gold about $900 higher than it was then, the same question regarding gold in 2010 cuts to the wick: What is the dollar going to do?

An Avalanche of Money
One thing is certain. This is not your father’s Federal Reserve.

The Fed that existed 30 years ago was chaired by Paul Volcker. Volcker was brought in to curb soaring inflation. To do that he decided his first priority was to protect the dollar, recession be damned. At the same time Ronald Reagan was coming into office. He was trying to curb government spending.

As the chart below shows, Volcker jacked the Fed funds rate up to almost 20 percent. In the process the United States endured a great rolling recession that devastated the commodity markets and farmers. Yet for the next two decades the dollar would be the world’s kingpin currency.

With the exception of The Crash of 1987 the U.S. economy was on firm ground, and prosperity was growing.

Then came a speculative stock bubble, 9/11 and runaway deficits.

In the wake of all this are President Obama and Fed Chairman Ben Bernanke who are not squeezing a single thing! Instead they are creating a tsunami of money. It amounts to throwing gasoline on a fire.

In just over a year the Fed has increased our monetary base by a whopping 120 percent! That is more than double the previous highest annual increase over the past 50 years. The Fed has made huge loans to private lenders and bought more than $1 trillion of mortgage securities and hundreds of billions of dollars of long-term Treasury bonds. It has succeeded in lowering the federal funds rate below 1 percent—and even, for most of the time, to less than half that.

Washington is trying to jump-start the economy with unprecedented amounts of money. Yet the old economist adage holds, “It’s like pushing on a string.”

 Unless there is demand for money by willing lenders and borrowers the economy is not going to improve. What is going to happen is a train-wreck for the dollar.

The dollar is more than 14 percent off its March peak, and some worry that additional losses could prompt foreign investors to start selling dollar-denominated assets.

But while a sluggish U.S. recovery and low interest rates mean the dollar may have further to fall in the year ahead, very low inflation means a crisis is far from imminent, said Henry Kaufman, president of Henry Kaufman & Company, Inc.

"There has been no dollar crisis," Kaufman said. "The retreat of the dollar has been gradual, it has been orderly and it has not had an impact on the securities market."

Perhaps so, but as this U.S. Dollar Index chart shows, the greenback is still fading fast in a bear market that began eight years ago. If the dollar continues its slide in 2010, as I think it will, it will break below its 2008 lows of 71.5. When that happens the dollar will be in uncharted territory. Just how far it could slump from here is anybody’s guess, but with offshore investors holding trillions in dollar assets, the dollar’s direction is of critical importance to everyone.

Of course if you want to you can buy a 30-year T-bond today that will pay you a 4.7 percent annual return. Given that the real rate of inflation is at more than five percent, that is a losing proposition.

Now the only reason that Washington has been able to get away with selling such risk for such a miserable return is two-fold:

  1. Nations like China, India, Japan and Germany don’t have another currency to put their surpluses into.
  1. The deflation fears from 2008 still linger, so rather than put money into real estate or real assets, trillions of dollars are being invested in U.S. Treasuries.

But disgruntlement among lenders is growing quickly, leaving the U.S. bond market ripe for a collapse. Last month Treasuries fell, with the gap in yields between 2-year and 30-year securities reaching its widest margin since 1980. This means that people holding long-term Treasury bonds want a much larger return than those investing in short-term Treasuries. The reason is simple—long-term confidence in the dollar is evaporating.

Meanwhile the U.S. continues to be a beggar of last resort. To pay for all of President Obama’s plans the government has to auction off hundreds of billions of dollars in U.S. Treasuries this year.

In 2006 the U.S. bond market was worth an estimated $44 trillion. If interest rates rise, as I think they will, trillions of dollars in wealth could disappear. That is not just wealth held by foreigners but by all Americans.

Furthermore, the biggest danger will be the U.S. will have to finance its deficits with additional Treasury debt. To get those loans, interest rates will certainly climb.

Forecast for 2010
Dollar: Look for an even weaker dollar in 2010. The U.S. Dollar Index is close to breaking down and losing all technical support. That could throw traders into frenzy.

Bonds: Expect a smash-up in the bond market as investors are now holding bonds that pay a pittance. To sell off its Treasury debt the Fed is going to be forced to raise interest rates which will throw bond prices into a tailspin. Higher rates will also be a stake in the heart of the…

Stock Market: The Dow Industrials are flirting with 11,000. My expectation is that the Dow may touch upon this level before higher rates drive stock prices lower. Look for the Dow to be under 7,500 by the end of the year. I expect an even worse year for the tech-packed NASDAQ. This year will be a tough year for investors unless they are in real assets, especially…

Precious Metals: Gold continues to shine, although expected profit taking will happen along the way. Washington and other governments would love to keep a cap on the price of bullion, but right now they have much bigger fish to fry. My expectation is that the Midas metal will top $1,500 per ounce before year’s end and silver will rise from the $17 range to $25 per ounce. That leaves us with one other key sector…

Energy: It is going to be a mixed bag for energy this year. In fact, oil could easily fall back toward the $60 per barrel range if interest rates increase enough to choke off the recovery. Still, world demand for oil continues to grow. I think that over the long-term oil prices are headed back toward $150 per barrel. That may not happen, however, until we are closer to 2012.

Well, there you have it… my forecast for 2010. But keep in mind something that the Yankee great, Yogi Berra, said, “Prediction is very hard, especially about the future.”

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

The False Hope of Hi-Tech

“I don’t know if HAL is homicidal, suicidal, neurotic, psychotic, or just plain broken.”
Arthur C. Clark, 2010: Odyssey Two

Ten years ago today the clock was ticking down on Y2K. Many feared a social and economic meltdown; that a programming glitch would throw us into a new Dark Age.

Fast forward one decade. Washington and Wall Street are now betting the bank that technology is America’s savior. Everything seems within reach—more jobs, clean energy, a budget surplus, even a super-bull market.

Technology was not the Antichrist a decade ago, nor is it our savior now. It will not destroy us. Nor will it revolutionize our world. That was the power of innovation a century ago, not today.

Revolution Comes to the Farm

The kid tightened the reins on the right line and then hollered, “Get-up!”
                       
Eight thousand pounds of horseflesh simultaneously hit their heavy collars and the grain wagon started to amble its 10-mile journey to the tiny town of Lomond in Alberta, Canada.

The year was 1927 and that kid was my dad, Vern Myers.

Fifteen years before he had barely survived his birth. He was the family’s first child. His mother lay in agonizing labor for nearly three days. Aided by a local midwife for the first few hours, it became apparent that this was a crisis and required a skilled doctor. The baby’s father, Amil, saddled the fastest horse and headed to Stavely, 40 miles to the west.

These were not the days when one picked up the phone and called 911. There were no paved roads or autos that sped from place to place. The closest hospital was Lethbridge some 70 miles away where the staff consisted of a couple of doctors and half a dozen nurses.

But this time luck was with him. Amil borrowed a friend’s fresh horse. He and the doctor arrived at the lonely homestead shack.

Fifteen years later Vern was holding the lines of four horses on a wagon loaded with 7,680 pounds of the finest milling wheat in the world. He was just starting the first leg of his destination to the rails at Lomond, Calgary, and on to Ontario. There it would be loaded onto ships for Europe.

The grain tank pulled onto the prairie dirt trail and headed east. The kid restrained the eager horses. He knew that soon they would struggle to climb the 300-foot elevation before the trail leveled out. When they reached the top, the horses, with their heaving lungs, required a five-minute rest.

As the Clydesdales recovered Vern heard the strange sound. It was a motor, but it was not from a car. He looked into the lower valley that was hidden from view by the grade that had just been climbed. A cloud of dust rose in the sky. Now he could hear the straining motor and then the monster broke over the top. It was a truck loaded with golden wheat. The vehicle was gaining speed and Vern could hear the driver shifting gears. The truck pulled alongside. It was the neighbor Freddie Noyes. In a flash he was past.

An hour later and four miles further down the road, he noticed a cloud of dust approaching. It was Freddie on his way back home to load more grain.

Vern was just unloading the wagon box in town when again the noise broke the still air. It was Freddie with another load.

Watering his spent horses back at home Vern was amazed. He and Freddie had both started work at the same time. Vern had delivered 125 bushels of grain to the elevator and returned home in just over five hours. Vern had traveled 20 miles.

Freddie had driven 120 miles and delivered 600 bushels in six hours! And Freddie wasn’t one bit tired. In one day the Industrial Revolution had come to the homestead.

Enter the Microchip

In 1990 the boy that saw the truck come to the West died. He had experienced more change during his 78 years than the world had undergone during the previous millennium.

He was born nine years after the Wright Brothers flew at Kitty Hawk. As an old man he would cross the Atlantic in the Concorde at 1.5 times the speed of sound. He had seen the application of indoor plumbing, electricity, the telephone, the television, space flight and even the inception of the Internet.

I took his place as publisher at age 30. I was still in school studying at a university just as computer science was being embraced and I was enthralled by the wonders of the micro chip.

That first year I bought an IBM 386. It was a marvel for the time, with more than twice the memory of its predecessor, the 286. In fact the salesman bragged it could do 11.4 million instructions per second (MIPS)! I didn’t know exactly what that meant, but it sounded impressive.

Today the top-of-the-line computer is a diesel processor Intel Core i7 Extreme. If you ask me it sounds more like a tractor than a computer. I suspected it was a lot faster than my 3-year-old computer and far better than that old 386. But I was shocked at just how much faster it is.

The i7 Extreme lives up to its name; it does 76,000 MIPS which makes it roughly 70,000 times faster than the 386. The Extreme also has 8,000 times more memory! (Author’s note: To you computer aficionados, I did my research and understand that MIPS is a very raw indicator.)

Yet the truth is that all this speed is wasted on me. You see, I use my computer like I once used a typewriter. And unless you are doing something like scientific research or wasting your time playing video games, that computing power is senseless.

This is what MetaFilter (www.metafilter.com) has to say about the revolution of the personal computer when they compared a 1986 Mac Plus to a 2008 AMD Dual Core.

“When we compare strictly common, everyday, basic user tasks between the Mac Plus and the AMD we find remarkable similarities… thus it can be stated that for the majority of simple office uses, the massive advances in technology in the past two decades have brought zero advance in productivity,” said MetaFilter.

Certainly the Net and these super-computers provide a plethora of information. But are we really any better informed? No says Wired Magazine.

According to the June 2007 issue, “More than a decade after the Internet went mainstream, the world’s richest information source hasn’t necessarily made its users any more informed.”

Wired backs up its claim with a 2007 study from the Pew Research Center for the People & the Press that showed that Americans, on average, are less able to correctly answer questions about current events than they were in 1989.

That’s right, Americans who call the Internet their primary news source know less than fans of TV and radio news. It seems that people are more interested in Jessica Simpson than in Jim Lehrer.

A Bankrupt Revolution

The advent of the automobile, the assembly line, the airplane and the telephone revolutionized the American way of life. At the beginning of the 20th Century the United States was seen as a renegade colony. In less than 50 years we became the richest most powerful nation in the world.

By the late 1960s the American dream was within almost everyone’s grasp. Little wonder—the U.S. was the world’s largest manufacturer, creditor and exporter.

But by the 1980s the rest of the world was starting to catch up. Most of us, heck all of us, kept wanting to get more “things.” But now we weren’t earning them.

To get them we started doing something America had never done before—we started borrowing hand-over-fist. The result is we have created a debt crisis the likes of which has never been seen. And most importantly, it’s a calamity that won’t be resolved with even faster and smarter machines.

Yours for real wealth and good health in 2010,

John Myers
Myers’ Energy and Gold Report

P.S. Next week I will look at the debt crisis and what it means for your investments in 2010.

Santa Claus

One Christmas past my eldest son Richard was furious with me.

Since he was old enough to remember, his mother and I had told him about Santa Claus. It seemed like a harmless enough fib.

He loved Santa Claus. Not only was Santa a magical character of mythical proportions, but his very existence—in the eyes of a 7-year-old—meant limitless potential. If he wanted something special, all he had to do was ask Santa Claus.

Of course Santa didn’t always bring everything he wanted; but there was always the prospect that he could, or the hope that next year he would. It was the ultimate fantasy of something for nothing.

Unfortunately Richard’s fairy tale came to an end.

“There really isn’t a Santa Claus, is there Dad?”

It is one thing to perpetuate a myth and another one to outright lie.

“No son,” I said, “Santa Claus isn’t real.”

Disappointment washed over his face. He had to get the truth from his cousin. Mom and Dad couldn’t be trusted. The whole thing, even the milk and cookies set beside the fireplace, were one big lie.

Yet for our 5- and 3-year-olds—Matthew and Sarah—the myth burned on for a few more years. They knew there was a Santa. Mom mailed letters to the North Pole every year, and there were visits to the mall to see Santa himself. Sometimes Santa even brought them exactly what they wanted.

It’s been 20 years since that Christmas and I am starting to wonder if there is a Santa Claus. It is our Federal Government, and this Santa gives the gift that lasts all year.

“If you take the government to be Santa Claus,” says economist Robert Higgs, “you naturally want every day to be Christmas; and the bigger the Santa, the bigger his sack of goodies.”

That sack is certainly getting bountiful. Today the Federal Government is not only the nation’s largest creditor, debtor, lender, employer, consumer and contractor; it is also Santa Claus to tens of millions of Americans.

According to the Brookings Institution and the Urban Institute, roughly 47 percent of Americans either pay no tax or a negative tax (Washington sends money to some people every year through such programs as the Earned Income Tax Credit).

The Federal Government has a long list and lately it hasn’t bothered checking it twice. Since October of 2008 the Federal Government has committed $700 billion and already spent $420 billion through the Emergency Economic Stabilization Act. The Feds have also set aside another $400 billion in separate bailouts to Fannie Mae and Freddie Mac.

For companies like General Motors (GM) and AIG, which have been gifted $50.4 billion and $69.8 billion respectively, there really is a Santa Claus.

If you want to check on all the goodies that Washington has given, there is a detailed list you can see here.

Best of all, Santa wants to see all of his gifts given. On Dec. 8, President Obama unveiled plans to use some of the $200 billion in lower-than-expected spending on troubled bank assets as a fiscal stimulus. Obama claimed his proposal is aimed at alleviating the “continued human tragedy” of unemployment.

Obama said he wants to create “the greatest number of jobs while generating the greatest value for our economy.” And just like Santa, Obama is leaving the price tag off.

What we do know is that the President is calling for an extension of unemployment and health insurance benefits for the more than 15 million out-of-work Americans. According to Obama, boosting jobs—through more government spending—is the best way to tackle the deficit. That kind of deductive reasoning is every bit as magical as Santa Claus.

The list seems endless. Forty billion dollars needed in Afghanistan? Done! One trillion dollars needed for Obamacare? The Democrats are working on that. Meanwhile there is even $1.1 billion for a new agency to protect consumers. And the Greens can count on a stocking-stuffer delivered fresh from Copenhagen.

Bad Santa

There is just one problem. Santa is broke. The budget deficit is a runaway sleigh. For the year ending in September it hit a stunning $1.4 trillion. If that weren’t bad enough, the Congressional Budget Office forecasts a cumulative $9 trillion deficit over the coming decade. When I started in this business in the early 1980s some were issuing dire warnings over Reagan pushing federal debt above the $1 trillion mark. This Christmas it is $12 trillion and climbing.

“No single year’s deficit is any particular danger,” says the Dec. 8 Motley Fool, “but their accumulation quickly becomes lethal. Piling up endless sums of debt works until it doesn’t, at which time a vengeful flock of chickens comes home to roost. Those needing proof can ask Dubai, or simply refer to the recent performance of the U.S. dollar.”

In fact there may be one heck of a Christmas hangover. Moody’s is looking at the debt of both the U.S. and U.K. and might downgrade it from “Triple-A” status.

According to The Wall Street Journal, “Moody’s released the report as part of an effort, spurred by investor demand, to examine the creditworthiness of the world’s most highly rated countries.”

That’s very bad news for Treasury investors. And in the end it may mean the end of Santa Claus. Foreigners hold $3.5 trillion in Treasury debt. If they start unloading even a fraction of this debt the U.S. dollar will crash and the price of gold will soar.

So let me leave you with this Christmas wish; that you buy you and your loved ones some gold. Unlike Santa Claus, it will always be there for you.

Yours for real wealth, good health and, Season’s Greetings,

John Myers
Myers’ Energy and Gold Report

China’s Century: The Impending Threat to America and the Dollar

“India conquered and dominated China culturally for 20 centuries without ever having to send a single soldier across her border”—Hu Shih, 20th Century scholar.

We are a little more than two weeks away from the second decade of the 21st century. More and more it is beginning to look like China’s century.

It’s been 60 years since the Communists seized power. According to Fareed Zakaria, the host of CNN’s Fareed Zakaria’s GPS, “Mao Zedong dragged the country through a series of catastrophic convulsions that destroyed its economic, technological and intellectual capital.”

But in December 1978 Mao’s successor, Deng Xiaoping, gave his famous cat speech which marked the fulcrum upon which the giant nation turned. At a Communist Party meeting he urged economic development over ideology. “It doesn’t matter if it is a black cat or a white cat,” said Deng. “As long as it can catch mice, it is a good cat.”

The question three decades later is what exactly is the Chinese cat hunting? Is it cooperation with the United States and the continued development of the global economy, or is it the relentless pursuit of global power and resource wealth? All the evidence is not yet in, but what we do know seems to indicate the latter with all its chilling ramifications.

But any discussion of China has to be first and foremost about its incredible economy, for the nation has risen towards superpower status in such little time. It is an economy that has doubled every eight years for the past three decades!

Just consider the following:

  • China has foreign exchange reserves totaling almost $2.2 trillion, double the next largest holder, Japan.
  • The number of cars driven in China doubles every three years.
  • China is the world’s largest producer of coal, steel and cement.
  • Twenty of the world’s fastest growing cities are all in China.
  • China manufactures two-thirds of all the world’s photocopiers, microwave ovens, DVD players and shoes.
  • Starbucks predicts that sometime next year it will have more cafes in China than in the U.S.
  • China is the world’s second largest defense spender (behind the USA).

It’s the final item that reveals the claws in China’s carefully crafted Panda Bear self-portrait.

A 2006 U.S. Department of Defense assessment of China was chilling. According to that report the Pentagon viewed China as the next big military threat to the U.S. “There are some real concerns about China’s military modernization,” said Adam Segal, senior fellow for China studies at the Council on Foreign Relations.

Then in 2009 a report from the Council on Foreign Relations said that China has been steadily building up its strategic and conventional capabilities since the 1990s.

According to U.S. defense experts, in 1990 China had a “bare-bones” military: basic capabilities, but nothing sophisticated or top-of-the-line. But two decades of double-digit spending increases have completely changed that picture.

The Pentagon estimates China’s total military spending for 2007 to be between $97 billion and $139 billion, as compared to $52 billion reported by China.

According to the Council on Foreign Relations most of that spending has gone to building a sophisticated, modern military: a large, increasingly capable fleet, an air force stocked with Russian warplanes, and technical strides which have improved China’s ballistic missile arsenal, as well as satellite surveillance, radar and interception capabilities.

“(U.S.) Hawks insist that the Chinese are seeking to drive the U.S. military out of the Pacific, and make it Beijing’s lake rather than what it has been for decades, an American pond,” said Time Magazine in an April 2009 issue.

China is constructing a nuclear aircraft carrier with a lethal and global reach to support its growing fleet of technologically advanced nuclear submarines.

Why is Beijing arming itself to the teeth? Perhaps for global dominance. Perhaps just for the natural resources it needs to sustain its growth: Core among them being oil.

This year Asia will have consumed about 50 percent of Middle East exported oil. China understands it might have to count on its military to lock-in future supplies.

That could mean another arms race or worse. That is something the U.S. can ill afford.

Another Golden Empire
China is also arming itself with gold.

According to the China Gold Association, Chinese demand for gold could total more than 16 million ounces this year, up from 12.9 million ounces in 2008.

China has also become the world’s largest gold producer, having surpassed South Africa in 2007.

“China is likely to become the number-one supplier and consumer of gold this year,” said Rozanna Wozniak, investment research manager at the World Gold Council.

On Nov. 31, China’s Economic Information Daily published remarks by a senior Chinese official indicating that Dubai’s debt crisis could be a good opportunity for China to purchase gold and oil assets.

Ji Xiaonan (Chairman of the Supervisory Committee overseeing large state-owned enterprises) was quoted as saying that the Dubai debt crisis "could give China an opportunity to put some of its foreign exchange reserves into gold or oil."

Just two weeks ago Ji Xiaonan said that China should increase the amount of gold it holds in reserves to reduce potential losses from a depreciating dollar. Currently China has relatively small gold reserves, just 1,200 metric tons or about 7 percent of the world total.

But Ji Xiaonan wants to change that. He wants China gold reserves to reach 6,000 metric tons within three-to-five years and possibly to 10,000 metric tons in eight to 10 years. (Ten thousand metric tons represents 350 million ounces of gold or about four years of global gold production.)

Money is Not a Problem
China has a lot of money to invest in gold and other real assets. It has foreign currency holdings of $2 trillion which include $800 billion in U.S. Treasury debt. With that kind of dollar exposure it is little wonder that China wants to increase its gold reserves 10-fold.

This will be an unprecedented national build-up of official gold reserves (in fact for the past 50 years most nations have been net sellers of gold). China’s radical increase in its bullion reserves is likely a harbinger for much higher prices for the Midas metal. How high is anyone’s guess, but I wouldn’t be surprised to see gold above $1,500 by next spring.

Action to take: Don’t be surprised by a correction in the price of gold going into January. I think that over the very short-term the bull is tired. Over the long-term the bull market in gold is very much alive. I recommend you use any correction to add to your physical gold holdings in anticipation of considerably higher prices in 2010.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

Shocking Proof… Global Warming is a Hoax

(Part three of a three-part series on energy.)

“We’re being asked to wage trillions of dollars and substantially curtail freedom on climate models that are imperfect and unproven. (With) the consensus far from being as solid as they say it is, and the debate as over as they say it is.”
George F. Will

In President Nixon’s day, dirty tricksters did things the old fashioned way—with black gloves and flashlights. The result was Watergate, the eventual legacy of which may be that anything corrupt contains a word ending with “gate.”

The latest incident is Climategate. It began about three weeks ago when a computer hacker broke through a server used by the Climatic Research Unit at the University of East Anglia in England.

Unlike Watergate, which started a grand conspiracy, last month’s hacker-heist may unravel one. It appears as if the stolen e-mails reveal collusion by climate scientists to withhold scientific information. Some scientists don’t want the public to know the shocking truth—that the climate is NOT getting warmer.

The hacked e-mails from men and women of science include discussions on how to silence climate change skeptics. The e-mails also discussed how to censure scientists who dare to have contrary views on global warming and included derogatory remarks about climate skeptics. Finally, the e-mails discuss how to prevent actual data from being revealed under the Freedom of Information Act—an action that seems to have little to do with freedom and less to do with information.

For example, after learning that the scientific journal Climate Research had suggested that perhaps the world isn’t burning up, Penn State professor Michael Mann wrote in an e-mail: "I think we have to stop considering Climate Research as a legitimate peer-reviewed journal. Perhaps we should encourage our colleagues in the climate research community to no longer submit to, or cite papers in this journal."

Besides a seeming tendency to write people off in true Stalinist fashion, Mann has made a living writing about the dangers of global warming. He helped build the “hockey stick graph” shown below.

“Remember that this is not an academic exercise,” wrote The Atlantic. “We contemplate outlays of trillions of dollars to fix this supposed problem. Do the scientists involved deserve to be trusted? No. These people are willing to subvert the very methods—notably, peer review—that underwrite the integrity of their discipline.”

But the story gets even better. At the end of November the University of East Anglia admitted losing raw temperature data on which their predictions of global warming are based.

It means that nobody can check basic calculations that supposedly show a long-term rise in temperature for the past 130 years.

With Watergate Nixon gave the old, “The dog ate my homework” excuse. (Actually Nixon’s secretary Rose Mary Woods said she accidentally erased the recording of the president’s meeting with H.R. Haldeman that took place three days after the break-in.)

With Climategate, the University of East Anglia is saying the computer ate the data.

According to the University’s Website: “We do not hold the original raw data but only the value-added (quality controlled and homogenized) data.”

Even if you accept that the University isn’t cooking the books, the environmentalists have a problem. They claim that world temperatures have risen one degree Fahrenheit in the past century. However the starting point—around 1880—was colder than average. Furthermore, the timing of temperature changes does not fit the theory of global warming. Most of the rise came before 1940, or before greenhouse gases were significant.

A Bright Future for this Old Resource

In the end I think global warming will turn out to be more myth than fact. If that’s the case then a lot of alternative energy investors will be tempted to jump-off the windmills they invested in. And as it is demonstrated that fossil fuels are not going to flood the world and kill off all the polar bears, core energy investors should do spectacularly well. In fact, the biggest profits might be in the oldest resource—coal.

Coal-fired power plants account for half of the U.S. electricity supply. More importantly, coal is also America’s most abundant natural resource.

We have seen in the first two parts of this series that we live in a dangerous age—a period where renewable energy technologies have not yet been realized and a time when America is becoming dangerously dependent on Arab oil.

This third part to the series focuses on a tangible solution—coal. In all of its abundance and its utility, coal will power America deep into the 21st Century.

Just last month The Wall Street Journal ran an article titled: Coal Warriors: Why U.S. Coal Producers Could Still Have a Bright Future.

The WSJ stated: “Coal is and will remain a huge part of the electricity mix in the U.S., despite—or perhaps because of—congressional action on energy and the climate.”

The United States — the Saudi Arabia of Coal

The heady days of petroleum in America are far behind us. Over the course of the past 30 years America’s oil imports have surged threefold—from 2.6 million barrels per day (mb/d) to 7.6 mb/d.

The fundamental fact is that the United States and the world are hungry for energy. Consider the following:

  • U.S. demand for all types of energy is expected to increase by 31 percent within 25 years.
  • Electricity demand in the U.S. will grow by at least 40 percent by 2032.

New power generation equal to nearly 300 1,000 megawatt power plants will be needed to meet electricity demand by 2030; as many as half of them will be coal.

Luckily, coal is the one resource the United States has plenty of. The U.S. has the largest coal reserves in the world, just short of 250 billion tons. That is almost the combined reserves of the next two largest reserve countries China and Russia.

In fact, the U.S. is one of the world’s leading exporters of coal, and is expected to ship 65 million tons this year. That total will grow as nations like India and China ramp up their industrial revolutions with King Coal.

Future world demand for electricity is expected to be so strong that Exxon-Mobil is planning on spending a record $25 billion to $30 billion annually over the next five years finding new hydrocarbon deposits.

“The global economy is experiencing a downturn but at Exxon-Mobil we are focused on the long-term,” said Rex Tillerson, the company’s chairman and CEO.

Power up Your Portfolio with Arch Coal

Any conversation about meeting future energy needs must include coal. Even the “greens” realize this. According to left-leaning CNET News, “Coal is a major source of air pollution, mining accidents, and environmental damage. Unfortunately, we can’t live without it.”

The International Energy Agency (IEA) agrees. In its World Energy Outlook, the IEA says global energy demand will surge by 45 percent between now and 2030. The number one resource to meet this demand will be coal.

That makes investing in coal a smart choice, especially when you consider how depressed coal company stock prices have been over the past 15 months.

My favorite blue-chip coal company is Arch Coal Inc (ACI, NYSE).

Arch mines and sells steam and metallurgical coal from surface and underground mines to power plants, steel mills and industrial facilities in the United States. Arch operates 20 active mines and owns some 2.8 billion tons of proven and probable recoverable reserves.

As you can see from this graph, Arch is selling for about $20 or just one-quarter of its 2008 high. The recession and the growing fears over “green” politics, starting inside the White House, make Arch an incredible bargain. Meanwhile the world is slowly learning the truth—that global warming is a hoax perpetrated by the left-wing establishment and a liberal media.

And if that was not enough, the Federal Reserve and the Obama administration continue to expand the U.S. money supply at a shocking and unprecedented rate. You can read more details on this by going to my Nov. 11 column, Obama’s Bear Market: How to Survive and Prosper.

This surge of new money and continued easy credit is certain to lead to excessive inflation and continued dollar devaluation.

Taken as a whole, these factors could result in the doubling of Arch Coal’s price over the next 18 months. That’s something you don’t often get with a large market cap stock. Yet I think we are going to see with Arch.

Action to take: I urge you to buy Arch Coal (ACI, NYSE) at market. Call you stockbroker today.

Yours for real wealth and good health

John Myers
Myers’ Energy and Gold Report