Tag: Casey Research

Complete Breakdown of Financial Controls in US Government, Says Austin Fitts

Former HUD Assistant Housing Secretary and investment advisor Catherine Austin Fitts reveals her thoughts on the ever-rising debt ceiling… what Obamacare is really about (and that’s not socialized healthcare)… why over $4 trillion missing from federal programs may not be incompetence, but a covert strategy… how to protect yourself from the constant devaluation of the US dollar… and what exactly the Popsicle Index measures and why it matters.

Here are a few excerpts:

“I don’t see Obamacare as something designed to offer healthcare. … I think the question comes down to a bigger one, which is, are we going to create a society where one hundred percent of everything is digitized and under central control?”

“Who is the governance system, and why are they behaving the way they are behaving? What we see is literally a psychopathic effort and intensity—whether it is in the energy area, whether it is in the currency area, whether it is in the food area, whether it is in the healthcare area—to get 100% central control and to use digital means to do it, and the question is why?”

“Well, you have a complete breakdown of internal financial controls in the US government. … You had over $4 trillion of what is called undocumentable adjustments and to this day, [these agencies] have never, as required by law, produced audited financial statements.”

“In my experience, government is not incompetent at all. … Gridlock is a cover story, incompetence is a cover story. There is a plan, you just can’t see what it is.”

James Turk: Erosion of Trust Will Drive Gold Higher

By Casey Research

A Q&A with Casey Research

James Turk, founder of precious metals accumulation pioneer GoldMoney, has over 40 years’ experience in international banking, finance, and investments. He began his career at the Chase Manhattan Bank and in 1983 was appointed manager of the commodity department of the Abu Dhabi Investment Authority.

In his new book The Money Bubble: What to Do Before It Pops, James and coauthor John Rubino warn that history is about to repeat. Instead of addressing the causes of the 2008 financial crisis, the world’s governments have continued along the same path. Another—even bigger—crisis is coming, and this one, say the authors, will change everything.

One central tenet of your book is that the dollar’s international importance has peaked and is now declining. What will the implications be if the dollar loses its reserve status?

In a word, momentous. Although the dollar’s role in world trade has been declining in recent years while the euro and more recently the Chinese yuan have been gaining share, the dollar remains the world’s dominant currency. So crude oil and many other goods and services are priced in dollars. If goods and services begin being priced in other currencies, the demand for the dollar falls.

Supply and demand determine the value of everything, including money. So a declining demand for the dollar means its purchasing power will fall, assuming its supply remains unchanged. But a constant supply of dollars is an implausible assumption given that the Federal Reserve is constantly expanding the quantity of dollars through various forms of “money printing.” So as the dollar’s reserve status erodes, its purchasing power will decline too, adding to the inflationary pressures already building up within the system from the Federal Reserve’s quantitative easing program that began after the 2008 financial collapse.

Most governments of the world are fighting a currency war, trying to devalue their currencies to gain a competitive advantage over one another. You predict that China will “win” this currency war (to the extent there is a winner). What is China doing right that other countries aren’t? How would the investment world change if China did “win”?

As you say, nobody really wins a currency war. All currencies are debased when the war ends. What’s important is what happens then. Countries reestablish their currency in a sound way, and that means rebuilding on a base of gold. So the winner of a currency war is the country that ends up with the most gold.

For the past decade, gold has been flowing to China—both newly mined gold as well as from existing stocks. But that flow from West to East has accelerated over the past year, and there are unofficial estimates that China now has the world’s third-largest gold reserve.

The implications for the investment world as well as the global monetary system are profound. Why should China use dollars to pay for its imports of crude oil from the Middle East? What if Saudi Arabia and other exporters are willing to price their product and get paid in Chinese yuan? Venezuela is already doing that, so it is not a far-fetched notion that other oil exporters will too. China is a huge importer of crude oil, and its energy needs are likely to grow. So it is becoming a dominant player in global oil trading as the US imports less oil because of the surge in its own domestic fossil fuel production.

Changes in the way oil is traded represent only one potential impact on the investment world, but it indicates what may lie ahead as the value of the dollar continues to erode and gold flows from West to East. So if China ends up with the most gold, it could emerge as the dominant player in global investments and markets. It already has become the dominant player in the market for physical gold.

You draw a distinction between “financial” and “tangible” assets, noting that we go through a recurring cycle where each falls in and out of favor. Where are we in that cycle? With US stocks at all-time highs and gold down over 30% since the summer of 2011, is it possible that the cycle is rolling over?

Our monetary system suffers recurring booms and busts because of the fractional reserve practice of banks, which allows them to create money “out of thin air,” as the saying goes. During booms—all of which are caused by too much money that banks have created by expanding credit—financial assets outperform, but they eventually become overvalued relative to tangible assets. The cycle then reverses. The fractional reserve system goes into reverse and credit contracts, causing a lot of promises made during the good times to be broken. Loans don’t get repaid, unnerving bankers and investors alike. So money flees out of financial assets and the counterparty risk these assets entail, and into the safety of tangible assets, until eventually tangible assets become overvalued, and the cycle reverses again.

So for example, the boom in financial assets that ended in 1967 led to a reversal in the cycle until tangible assets became overvalued in 1981. The cycle reversed again, and financial assets boomed until the popping of the dot-com bubble in 2000. We are still in the cycle favoring tangible assets, but there is no way to predict when it will end. We know it will end when tangible assets become overvalued, but as John and I explain in The Money Bubble, we are not even close to that moment yet.

You cite the “shrinking trust horizon” as one of the long-term factors that will drive gold higher. Can you explain?

Yes, this is an important point that we make. Our economy, and indeed, our society, is based on trust. We expect the bread we buy from a baker or the gasoline we buy for our car to be reliable. We expect our money on deposit in a bank to be safe. But if we find the baker is putting sawdust in our bread and governments are using depositor money to bail out banks, as happened in Cyprus last year, trust begins to erode.

An erosion of trust means that people are less willing to accept the counterparty risk that comes with financial assets, so the erosion of trust occurs during financial busts. People as a consequence move their wealth into tangible assets, be it investments in tangible things like farmland, oil wells, or mines, or in tangible forms of money, which of course means gold.

Obviously, gold has been in a painful slump since the summer of 2011. What near-term catalysts—let’s say in 2014—could wake it from its slumber?

We have to put 2013 into perspective, because portfolio management is a marathon, not a 100-meter sprint. Gold had risen 12 years in a row prior to last year’s price decline. And even after last year, gold has appreciated 13% per annum on average, making it one of the world’s best-performing asset classes since the current financial bust began with the popping of the dot-com bubble.

Looking to the year ahead, there are many potential catalysts, but it is impossible to predict which event will be the trigger. The derivatives time bomb? Failure of a big bank? The sovereign debt crisis returns to the boil? The Japanese yen collapses? It could be any of these or something we can’t even imagine. But one thing is certain: as long as central banks continue their present money-printing ways, the price of gold will rise over time to reflect the debasement of national currencies. The gold price might not jump to its fair value immediately because of government intervention, but it will rise eventually and inevitably.

So the most important thing to keep in mind is the money printing that pretty much every central bank around the world is doing. The central bankers have given it a fancy name—”quantitative easing.” But regardless of what it is called, it is still creating money out of thin air, which debases the currency that central bankers are supposed to be prudently managing to preserve the currency’s purchasing power.

Money printing does the exact opposite; it destroys purchasing power, and the gold price in terms of that currency rises as a consequence. The gold price is a barometer of how well—or perhaps more to the point, how poorly—central bankers are doing their job.

Governments have been debasing currencies since the Roman denarius. Why do you expect the consequences of this particular era of debasement to be so severe?

Yes, they have, and to use Rome as the example, its empire collapsed when the currency was debased. Worryingly, after the collapse of the Roman Empire, the world went into the so-called Dark Ages. Countries grow and prosper on sound money. They dissipate and eventually collapse when money becomes unsound. This pattern recurs throughout history.

Rome of course did not collapse overnight. The debasement of their currency cannot be precisely measured, but it lasted over 100 years. The important point we need to recognize is that the debasement of the dollar that began with the formation of the Federal Reserve in 1913 has now lasted over 100 years too. A penny in 1913 had the same purchasing power as a dollar has today, which, interestingly, is not too different from the rate at which Rome’s denarius was debased.

After discussing how the government of Cyprus raided its citizens’ bank accounts in 2013, you suggest that it’s a near certainty that more countries will introduce capital controls and asset confiscations in the next few years. What form might those seizures take, and how can people protect their assets?

It is impossible to predict, of course, because central planners can be very creative in coming up with different forms of financial repression that prevent you from doing what you want with your money. In fact, look at the creativity they have already used.

For example, not only did bank depositors in Cyprus lose much of their money, much of what was left was given to them in the forms of shares of the banks they bailed out, forcing them to become shareholders. And the US has imposed a creative type of capital control that makes it nearly impossible for its citizens to open a bank account outside the US. Pension plans are the most vulnerable because they are easy to get at. Keep in mind that Argentina, Ireland, Spain, and Poland raided private pensions when those countries ran into financial trouble.

Protecting one’s assets in today’s environment is difficult. John and I have some suggestions in the book, such as global diversification and internationalizing oneself to become as flexible as possible.

You dedicated an entire chapter of your book to silver. Which do you think will appreciate more in the next year, gold or silver? How about in the next 10 years?

I think silver will do better for the foreseeable future. It is still very cheap compared to gold. As but one example to illustrate this point, even though gold underwent a big price correction last year, it is still trading above the record high it made in January 1980, which was the top of the bull run that began in the 1960s.

In contrast, not only has silver not yet broken above its January 1980 peak of $50 per ounce, it is still far from that price. So silver has a lot of catching up to do.

Silver is a good substitute for gold in that silver, too, can be viewed as money outside the banking system, which is an important objective to keep wealth liquid and safe today. But silver may not be for everyone, because it is volatile. This volatility can be measured with the gold/silver ratio, which is the number of ounces of silver needed to equal one ounce of gold. The ratio was 30 to 1 in 2011, and several months later jumped to 60 to 1.

So you can see how volatile silver is. But because I expect silver to do better than gold, I believe that the ratio will fall to 16 to 1 eventually, which is the same level it reached in January 1980. It is also the ratio that generally applied when national currencies used to be backed by precious metals.

Besides gold, what one secular trend would you be most comfortable betting a large portion of your nest egg on?

Own things, rather than promises. Avoid financial assets. Own tangible assets of all sorts, like farmland, timberland, oil wells, etc. Near-tangibles like the equities of companies that own tangible assets are okay too, but avoid the equities of banks, credit card companies, mortgage companies, and any other equities tied to financial assets.

What asset class are you most bearish on?

Without any doubt, it is government debt in particular and more generally, government promises. They have promised more than they can possibly deliver, so a lot of their promises are going to be broken before we see the end of this current bust that began in 2000. And that outcome of broken promises describes the huge task that we all face. There will be a day of reckoning. There always is when an economy and governments take on more debt than is prudent, and the world is far beyond that point.

So everyone needs to plan and prepare for that day of reckoning. We can’t predict when it is coming, but we know from monetary history that busts follow booms, and more to the point, that currencies collapse when governments make promises that they cannot possibly fulfill. Their central banks print the currency the government wants to spend until the currency eventually collapses, which is a key point of The Money Bubble. The world has lost sight of what money is.

What today is considered to be money is only a money substitute circulating in place of money. J.P. Morgan had it right when in testimony before the US Congress in 1912 he said: “Money is gold, nothing else.” Because we have lost sight of this wisdom, a “money bubble” has been created. And it will pop. Bubbles always do.

As James Turk said, “near-tangibles like the equities of companies that own tangible assets” (i.e., gold stocks) are good investments—and right now, they are dramatically undervalued. In a recent online video event titled “Upturn Millionaires,” eight influential investors including Doug Casey, Rick Rule, Frank Giustra, and Ross Beaty gathered to discuss the new realities in the gold stock sector—and why the odds of making huge gains are now extremely high. Click here to watch the event.

Now Is the Time to Buy Gold

By Bud Conrad, Chief Economist

Gold has been in a downturn for more than two years now, resulting in the lowest investor sentiment in many years. Hardcore goldbugs find no explanation in the big picture financial numbers of government deficits and money creation, which should be supportive to gold. I have an explanation for why gold has been down—and why that is about to reverse itself. I’m convinced that now is the best time to invest in gold again.

 

Gold Is the Alternative to Non-Convertible Paper Money

If you’ve been a Casey reader for any length of time, you know why gold is a good long-term investment: central banks are expanding paper money to accommodate the deficits of profligate governments—but they can’t print gold. Since the beginning of the credit crisis, the world’s central banks have “invented” $10 trillion worth of new currencies. They are buying up government debt to drive interest rates down, to keep countries afloat. The best they can do is buy time, however, because creating even more debt does not solve a credit crisis.

Asia Is Accumulating Gold for Good Reason

Since 2010, China has been buying gold and not buying US Treasuries. China’s plan seems to be to acquire a total of 6,000 tonnes of gold to put its holdings on a par with developed countries and to elevate the international appeal of the renminbi.

In 2013, China imported over 1,000 tonnes of gold through Hong Kong alone, and it’s likely that as much gold came through other sources. For example, last year the UK shipped 1,400 tonnes of gold to Swiss refiners to recast London bars into forms appropriate for the Asian market.

China mines around 430 tonnes of gold per year, so the combination could be 2,430 tonnes of gold snatched up by China in 2013, or 85% of world output.

India was expected to import 900 tonnes of gold in 2013, but it may have fallen short because the Indian government has been taxing and restricting imports in a foolish attempt to support its weakening currency. Smugglers are having a field day with the hundred-dollar-per-ounce premiums.

Other central banks around the world are estimated to have bought at least 300 tonnes last year, and investors are buying bullion, coins, and jewelry in record numbers. Where is all that gold coming from?

COMEX and GLD ETF Inventories Are Down from the Demand

The COMEX futures market warehouses dropped 4 million ounces (over 100 tonnes) in 2013. The COMEX uses two classes of inventories: the narrower is called “registered” and is available for delivery on the exchange. There are other inventories that are not available for trading but are called “eligible.” I don’t think it’s as easy to get holders of eligible gold to allow for its conversion to registered to meet delivery as the name implies. Yes, that might occur, but only with a big jump in the price.

The chart below shows the record-low supply of registered COMEX gold.

Meanwhile, SPDR Gold Shares (GLD), the largest gold ETF, lost over 800 tonnes of gold to redemptions. At the same time, central banks have provided gold through leasing programs (but figures are not made public).

Why Has Gold Fallen $700 Since 2011?

In our distorted world of debt-ridden governments and demand from Asia, gold should continue rising. What’s going on?

The gold price quoted all day long comes from the futures exchanges. These exchanges provide leverage, so modest amounts can be used to make big profits. Big players can move markets—and the biggest player by far is JPMorgan (JPM).

For the first 11 months of 2013, JPM and its customers delivered 60% of all gold to the COMEX futures market exchange; that, surely, is a dominant position that could affect the market. By supplying so much gold, they are able to keep the price lower than it would otherwise be.

A key question is why a big bank would take positions that could drive gold lower. Answer: Banks gain by borrowing at zero rates. But the Federal Reserve can only continue its large quantitative easing programs that bring rates to zero if gold is not soaring, which would indicate weakness in the dollar and the need to tighten monetary policy. Voilà—we have a motive. Also, suppressing the price of gold supports the dollar as a reserve currency.

The chart below shows the month-by-month number of contracts that were either provided to the exchange or taken from the exchange by JPM. For a single firm, the numbers are large, but the effect across all gold markets is greater because so many gold transactions follow the price set in the paper futures market.

What jumps out from the chart above is the fact that while JPM had been selling gold into the futures market for most of the year, it made a major shift in December, absorbing 96% of all gold delivered.

That is a radical shift and, I believe, an indicator that JPM‘s policy has shifted. In my opinion, their deliveries of gold were suppressing the price during 2013, but now their policy has shifted in a way that will support gold going forward.

This leaves a vital question unanswered: Why? Has the motivation to suppress the price of gold gone away? Not likely, and we may never know the full truth of what is happening, but I suspect the main reason for the shift is that they have done their damage. The $740 drop from top to bottom, a 39% decline, has shaken confidence in gold as a financial “safe haven” among many investors, especially those new to precious metals. At the same time, continuing to lean on gold at this point could become very costly. JPM delivered $3 billion (about 2 million ounces of gold) into the market up to December in 2013, and may not have ready sources of gold to keep that up. It is dangerous to put on big short positions unless you have gold or some future gold deliveries as a hedge.

By now, everyone knows of the shortages in the gold market; JPM has to be as aware of that as the rest of us. It just isn’t safe for them to continue to lean on the market. Being aware, it looks like they are taking the bet that gold will rebound, so they could do well on the other side of the trade.

Another confirmation of the shift by big banks comes from data provided by the US Commodity Futures Trading Commission (CFTC) that shows the net positions of the four biggest US banks in the futures market. There has been a dramatic change from being short the market to now being long.

Crisis Brewing in the Gold Market

Germany claims to hold 3,390.6 tonnes of gold, about half of which is held by foreign central banks. Over a year ago, they announced a plan to repatriate 674 tonnes of gold from France and the United States. The US said it would comply, but told the German government that it would have to wait seven years for all the gold to be delivered. The news out last week was that after a year, Germany had only obtained 37 tonnes of its gold—and only five of them were from the US. That is a trivial amount (only 160,000 ounces).

So why can’t Germany get its gold? Explanations of having to melt down existing gold and recast it just don’t make sense. The most logical conclusion, and the one I’ve come to, is that the United States simply doesn’t have the gold it says it has—neither Germany’s nor its own.

Of course, the US government isn’t going to admit that there’s a problem, but I say there is.

More evidence: JPMorgan’s COMEX warehouse contained 3.0 million ounces of gold in 2012, but that had dropped to 0.5 million ounces by mid-2013. Its registered inventories are a razor-thin 87,000 ounces. These kinds of swings are indicative of shortages and instability.

Further, JPMorgan sold its gold vault in New York City—located next to the Federal Reserve’s vault—to the Chinese. The banking giant also just announced the sale of its commodities trading business (although it may not have sold the precious metals part of that business). Perhaps they were concerned about new regulations of banks with deposit insurance from the government.

In another relevant development, Deutsche Bank recently surprised the gold community by quitting its position on the committee that sets the London a.m. and p.m. fixings. This came a few weeks after a German regulatory body called BaFin started investigating how these prices were set. BaFin also gave an indication that the process appeared worse than the LIBOR fixing scandal, which resulted in billions in fines.

Putting Inventories and Traders Together

The futures market looks fragile to me. The basic problem is that there are many more transactions that could put a claim on gold than there is gold registered for delivery in the COMEX warehouses.

The chart below gives a dramatic picture by simply dividing the open interest of all futures contracts by the registered inventories. The black line at the bottom shows the big jump in the ratio as the registered inventories declined. There are 107 times more open-interest positions than there is registered gold.

The futures markets operate on the expectation that only a few big traders will demand delivery. JPMorgan has shown that it is in a position to demand almost all (96%) of the gold for delivery. They are big enough that they could cause a collapse of the market, if they were to force delivery of more than is available. They know better than to do so, though, and I would guess that they will just manage to try to gain back what gold they have been delivering over the last several years. That should support the price of gold.

Gold Will Rise, and It’s on Sale Now

Now is the time to stake your claim in gold. In the long term, we know that paper money will become worthless; in the short term, the biggest seller has just shifted its actions to becoming a buyer. That makes this a good time to accumulate gold and gold mining stocks before a major shift upward in price.

Speaking of gold mining stocks: My Casey Report co-editor Doug Casey, as well as other famous gold speculators, are also convinced that a turnaround in the gold market may be upon us. If you haven’t yet, do yourself a favor and watch “Upturn Millionaires,” Casey’s online video event with eight well-known resource speculators and investment experts that premieres Tuesday at 2:00 p.m. EST. It’s free, so you just have to sign up to register.

Americans Can Still Benefit from Tax Havens

By Nick Giambruno, Senior Editor, International Man

“In this world nothing can be said to be certain, except death and taxes.”
–Benjamin Franklin

You are technically a slave when 100% of the fruits of your labor is taxed or otherwise confiscated by force. So, at what percentage are you not a slave?

When you consider the totality of the countless direct and indirect taxes on the local, state, and federal levels, as well as the pernicious effects of inflation, the hidden tax, many of us are at least halfway to 100%.

It is no mystery, then, why growing numbers of individuals and businesses seek ways to legally reduce this suffocating burden through structuring their affairs in low-tax jurisdictions.

Lately, with all the so-called “controversy” blaring from the media about low-tax jurisdictions (aka tax havens), and politicians piling on the wagon to denounce them, it’s no surprise that most Americans harbor the false impression that they are only for the super rich, or multinational corporations, or those engaged in illegal activity.

That is a misconception, however; tax havens offer a number of legitimate and completely legal functions that even Americans of modest means can advantageously employ.

Uh, About Those Taxes, Mr. Franklin…

In most instances, Mr. Franklin’s observation quoted above would be correct, certainly for American citizens and legal residents. However, for Americans who earn income in certain jurisdictions and meet qualifying IRS requirements, it is possible to prove Ben wrong.

First, note that the US, unlike the rest of the developed world, is the only country that enforces a system of citizenship-based taxation. This means that Americans are taxed on their worldwide income by virtue of their citizenship without regard to their country of residence. For example, an American expat who is a legal resident of and working in Switzerland, must file and pay taxes to both the US and Switzerland for income earned in Switzerland (the IRS allows credit for foreign taxes against your US tax obligation, but you might still end up paying taxes to two governments).

In contrast, the rest of the developed world practices a system of residence-based taxation. Under this system, you are only required to file and pay taxes in the country where you are a legal tax resident.

In short, American citizens and green card holders cannot escape the burden of filing and paying taxes to the US government, no matter where on earth they live or earn income. It is a unique burden that no other developed country places on its citizens.

An unfortunate example of American exceptionalism, I suppose…

An Exceptional Loophole

There is a silver lining, however, and that is the Foreign Earned Income Exclusion (FEIE).

What is it and how does it work?

If you qualify for the FEIE you can exclude a not-insignificant amount of foreign earnings from your US taxable income. This amount is adjusted annually for inflation and is set at US$97,600 for 2013.

To qualify for the FEIE, you must have foreign earned income and be either:

1. A “bona fide resident” of a foreign country or countries for a continuous period that includes an entire tax year, or
2. Physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Additionally, your tax home must be in a foreign country throughout the period. The IRS defines “tax home” as “the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.”

While the physical presence criterion (#2 above) is pretty straightforward, the “bona fide resident” test is less so. Basically, you must prove that you have established roots and a permanent presence in a foreign country. Without getting into too much legal jargon, TurboTax walks you through this process step-by-step and determines if you qualify for the FEIE or not. It is actually fairly simple to determine in most cases. Consult a tax professional if individual circumstances are more complex.

So, assuming that you qualify for the FEIE, you can exclude up to US$97,600 of your foreign earned income (for 2013) from your US taxable income. Keep in mind that the FEIE only reduces your US taxable income; you still have a tax liability to the country in which you reside and earned the foreign income.

That is unless you earn your income in one of these 18 countries that have no personal income tax:

Ben Was Only Half Right

The key here is to have a portable job or the ability to transplant yourself and your business to one of these 18 countries. This strategy is particularly well-suited for businesses or professions dealing with intellectual property, writers (freelance or otherwise), Internet publishing, skills that are needed in one of those countries (like engineers and medical professionals), or an income stream that can be moved across borders easily.

Through qualifying for the FEIE and utilizing the 18 countries above, Americans are able to legally prove Benjamin Franklin was only half right; taxes are not necessarily inevitable… well, at least on the first US$97,600 of foreign earned income.

Fortunately, it is still legal to take steps like this to internationalize yourself and reap the benefits of diversifying your political risk. However, if history is any guide, the window will not be open forever. Especially as governments (particularly in the West) become increasingly desperate as their fiscal situations continue to deteriorate. Learn more about it with Going Global 2014 – a report specifically geared toward teaching you the ways to internationalize yourself and your wealth.

Two Gold Stocks You’ll Wish You Owned in 2013… and Should Still Buy Now

By Laurynas Vegys, Research Analyst

Looking back on 2013, we have to conclude that it was one of the worst years for precious metals stocks in recent memory—despite all the reasons why it should have been a great one.

Here’s a sober look at the performance of the most widely followed indices in the precious metals (PM) sector.

It’s obvious that 2013 was an extremely painful year for precious metals investors.

Why? Here’s a shortlist of some of the most notable reasons.

• We didn’t see significant levels of price inflation in the US—the very thing that gold is a good hedge for—so there was no major flow into precious metals in America.

• Precious metals ETFs, like GLD, flooded the market with a massive amount of gold liquidations.

• The European sovereign debt crisis eased up (unless, of course, you live in the PIIGS countries, Cyprus, or pretty much anywhere else in the Eurozone).

• Rumors of the Fed tapering QE continued throughout the year, depressing the gold market and causing extreme volatility. (Oddly enough, the actual taper in December did much less harm than the rumors that preceded it, suggesting it was already priced in when it arrived.)

You can probably think of other reasons, but these no doubt contributed to the industry’s precipitous decline.

In such a depressed environment, it’s not surprising that almost all gold stocks were down, though our International Speculator portfolio outperformed the market indices. And in fact, two of our portfolio companies—both 2013 recommendations—saw their share prices rise substantially.

Here’s how these two stocks performed last year relative to gold and the indices:

The good news is both of these stocks are still “Buys” today, and we’re convinced there’s much more joy to come…

2014 Winner #1: Profit at Just About Any Price

Never mind simply beating the indices; this company gained a whopping 47.9% last year, due to its unique business model of processing third-party gold ore at its plant in South America.

We’d previously been skeptical of this model because ore suppliers are typically small scale and operate with no mine plan. This often causes irregularities in the quantity and quality of the ore received by the mill, which can lead to output and earnings seesawing wildly.

A very compelling angle to this story emerged, however, when the jurisdiction where the company operates decided to crack down on illegal and environmentally unsound ore-processing practices. This instantly created a bottleneck, allowing the company to pick and choose its potential suppliers and accept only the highest-grade deals.

Our 2014 Winner #1 has been steadily increasing output while keeping tight control over its ore grade and gross margin. One of the most attractive characteristics of its model: The company has been able to lock in a margin that remains stable even when the gold price fluctuates.

On the exploration side, our pick recently delivered high-grade drill results at its South American gold project, including some bonanza-grade hits. A large, high-grade discovery here could easily drive this stock to become a 10-bagger (i.e., produce gains of 1,000% or more).

However, successful exploration is not required for the shares to continue rising in the coming years, as the company will continue to profit from its gold processing operation.

This gold processor is still one of our favorite International Speculator picks. It will continue to earn record profits this year, even if the gold price goes nowhere—in other words, this stock still has plenty of upside with almost no downside risk.

2014 Winner #2: High-Grade Metal with Proven People

Our second favorite pick in 2013 was a new high-grade copper-gold producer in Colombia.

We had been following the story for a while, primarily because we know and trust management (and if you’ve read Doug Casey for any length of time, you know that “People” is the first and foremost of his Eight Ps of Resource Stock Evaluation).

We didn’t recommend the stock the first time we were on site, as metals prices were falling and the company had a big property payment coming due. Flash forward to today: The company raised the money it needed, the resources in the ground have been expanding and at excellent grade, mine upgrades are under way, and the keys to the plant have just been handed over.

The dual copper-gold production is a real boon in our current, low-price environment: Even if gold were to stay down for the rest of the year, the cash flow from the copper (a base metal and, therefore, subject to different economic factors than the precious metals) should keep the company’s profits humming along.

We have yet to see financial results from the operation, but we have a great deal of confidence in this mine-building team, one that has delivered for us repeatedly in the past.

Cash flow, and soon thereafter net profits, are an imminent push in this story—though the real jackpot potential comes from the large land package surrounding the company’s mine, which holds multiple outcrops of high-grade mineralization that have never been drilled.

Currently, the company is busy expanding its mine, so that exploration work probably won’t happen until later this year. But we do think there’s a good possibility of some very big news in the second half of 2014—so you’ll want to position yourself now, while prices remain relatively low.

Why You Should Own These Stocks This Year

Both of the companies—and their share prices—are poised to benefit greatly from increased cash flow, a ramp-up in production, and high-grade drill results.

In addition, 2014 Winner #1, with its ingenious long-term growth model and its ability to profit at just about any gold price, offers minimal downside risk. This company found a creative and profitable way to not only survive last year’s downturn but to thrive in the midst of it—and with an effective model in place, it will continue to prosper this year. The tide doesn’t need to turn in the precious metals sector for this stock to continue to do well.

Out of fairness to paying subscribers, we can’t give you the names of these two companies. But you can find out all about them—plus how to invest and what to expect this year—without any risk to you whatsoever.

Here’s what I suggest: Take us up on our 100% satisfaction guarantee and try Casey International Speculator for 3 months. If it’s not everything you expected and more, simply cancel for a prompt, courteous refund of every penny you paid.

Even if you decide to cancel ANY TIME after the 3 months are up, you’ll still get a prorated refund on the remainder of your subscription. That’s our iron-clad guarantee, so what do you have to lose? Just click here to get started.

Energy Outlook: What’s Hot in 2014

By Marin Katusa, Chief Energy Investment Strategist

Investors who want to know how the energy sector will be doing in the coming year are, in my opinion, asking the wrong question. There really is no such thing as “the energy sector,” because the performance of the different resources—from oil and gas, to uranium, to coal, to renewables—can vary dramatically.

Case in point: while unconventional oil exploration and production have seen a huge upswing in recent years, thanks to the vast success of the Bakken and other oil-rich shale formations, at the same time natural gas has taken a nosedive, due to a supply glut that still hasn’t found its balancing point.

To find out which investments will deliver the greatest profits for well-positioned investors in 2014, my team and I have identified three trends that are hot… and may become even hotter in the course of this year.

HOT: Service Companies in North America

The oil and gas production in the United States is mature. Rather than looking for new basins, companies are looking to “rediscover” the past by applying new technology to increase economic production from known oil and gas fields.

This new technology comes in a variety of shapes and sizes: better software, bigger rigs, more efficient drilling processes. And it’s being applied everywhere, onshore and offshore, conventional and unconventional alike.

Just as an example, today we’re seeing operators drill more than 50 horizontal wells from a single well pad, a far cry from just a decade ago.

Exploration and production companies know that the focus moving forward is not just the amount of oil they can pump out of the ground, but the profit they can extract from every barrel (what we call the “netback”). This is even more true in the mature unconventional basins such as the Bakken, Eagle Ford, and the Marcellus shale plays, where the margins are tight and require an oil price of more than US$70 per barrel in order to be economic.

This means E&P companies have to use the best ways to increase production from every well—while at the same time reducing their drilling costs. Failure to do so would be to guarantee a firm’s demise.

The dilemma for E&P companies is having to prioritize what their shareholders want in the short term—growing production and dividends—over whatever may be best for the company in the long term. At the same time, they have to fight the natural decline of oil coming out of their wells.

All the while, service companies continue to extract fees for their tools and services. Drillers, pumpers, frackers, and other oilfield-service guys make money regardless of whether E&P companies find oil or produce it at economic rates.

We’ve said it before: Many E&P companies are running on a treadmill, and the incline is going higher and higher, which means higher costs to produce the same amount of oil.

Of course, not all service companies will rake in the dough. The ones that will do the best are the ones that can consistently stay at the forefront of technology and keep signing contracts with the supermajors like Exxon, Chevron, and Shell.

HOT: European Energy Renaissance

Russia’s grip on European energy continues to tighten, and there’s a push to produce oil and gas within their own borders all around Europe.

2014 looks to be an exciting year for companies like one of our Casey Energy Report stocks, a TSX-V-listed oil and gas explorer and producer with a 2-million-acre concession in Germany. We call the deposit it’s sitting on the “Next Bakken” because we believe that its potential to deliver exceptional output could rival that of the famed North American formation.

This development is still in its early stages, but investors who position themselves now could see outsized gains for years to come. It’s not really a question of “if” the oil is there—previous oil production in the very same location yielded more than 90 million barrels—but of “how much” oil can be extracted with the modern methods not available the last time companies worked on this field.

The company has completed its first well and will continue to drill additional wells (both vertical and horizontal) next year. While the initial well cost more than anticipated, it’s a good start that indicates economic oil can be produced in Germany. We’re also confident this company’s experienced management team is applying the lessons of its first foray to reduce drill costs on future wells.

As our Energy Report pick proves up any of its projects in 2014 and early 2015, we can expect another of our holdings, which has just entered the German oil and gas scene, to either farm into the company or even buy it out.

We predict that by the end of 2015, our “Next Bakken” play, and others like it, will have attracted a lot of attention, not just from individual speculators, but from institutional investors as well—and investors who have gotten in early will be very happy indeed.

Another of our portfolio holdings is just beginning to drill on its Romania projects after a series of delays due to politics and bureaucracy. We have reason to be optimistic because its JV partner, a Gazprom subsidiary, has drilled successful wells on the same basin on the other side of the border in Serbia. If our pick has anything close to that level of success, the markets will surely take notice and its shares will go much higher.

As the “Putinization” of the global energy markets continues and Russia’s dominance grows, European countries become increasingly more desperate to escape from under Putin’s heavy thumb and to start developing their own energy resources.

The European Energy Renaissance is real, and we continue to monitor companies that are funded and have the permits and ability to drill game-changer wells in Europe in 2014.

HOT: Uranium

During a recent trip to London, I spoke with Lady Barbara Judge, chairman emeritus of the UK Atomic Agency and an advisor to TEPCO on the Fukushima nuclear disaster in Japan. I asked her point-blank whether Japan was willing to bring any nuclear reactors back online in 2014.

Her answer was an unequivocal “Yes.” The Japanese have no choice, really, because the alternative—importing liquefied natural gas (LNG)—is far too expensive.

Japan is the world’s largest importer of LNG and has had to double its imports since the Fukushima incident. For that privilege, the country pays some of the highest rates on the planet—almost four times more than what we pay for natural gas in North America.

South Korea also shut down its nuclear plants post-Fukushima to do inspections and maintenance upgrades, and it, too, has had to import a lot of LNG. Both countries are looking to restart their nuclear reactors so they can stop paying a fortune to foreign energy suppliers. When these countries restart their reactors, they’ll also restart the uranium market, so we expect uranium prices to begin to shake loose of the doldrums this year.

Another driver will be throwing the switch at ConverDyn, the US uranium facility that is slated to start converting natural U₃O₈ to reactor-ready fuel in late 2014 or early 2015.

We currently hold two solid uranium companies in the portfolio—one is a US-based small-cap producer (one of the very few in America), the other is the lowest-risk way to play the uranium market that I know of. Both, we believe, will take off in 2014 on the renewed interest in uranium and the associated stocks.

If you want to know more about our thoroughly vetted energy stocks and their potential for amazing gains in 2014 and beyond, give the Casey Energy Report a try. You’ll find all my “What’s Hot” predictions and the full names of the stocks I’ve mentioned above in our January forecast issue… plus the energy sectors you should avoid like the plague this year… as well as a feature article on elephant oil deposits in the Gulf of Mexico and a new stock pick ready to profit from them.

Giving the Casey Energy Report a try is risk-free because it comes with a 3-month, full money-back guarantee. If the Energy Report is not all you expected it to be, just cancel within those 3 months and get a prompt, full refund. Or cancel any time AFTER the 3 months are up for a prorated refund. Getting started is easy—just click here.

How I Renounced My US Citizenship and Why, Part I

 

The following is a firsthand story of how and why a former US citizen—who kindly shared this information on condition of anonymity—decided to renounce his US citizenship. It’s packed with practical advice and priceless insights into this momentous decision. Whether or not you take the ultimate step of renunciation, I believe you will find value from the author’s experiences.)

By Citizen of the World

Having evolved philosophically in my adulthood to a fairly hardcore libertarian worldview, I had read the writings of people like Doug Casey, which encouraged people even some decades ago to take concrete steps to internationalize themselves. Not just “talk the talk,” but to actually “walk the walk.”

My professional career offered me the chance to travel abroad quite a bit, so it was not too difficult for me to begin taking baby steps to internationalize.

I rented an apartment in one of the Asian cities that I frequently visited. A few years later, I made my first overseas real estate purchase of a small apartment in another Asian city, followed by several more in the next few years.

By this time, I was managing to spend about 2/3 of each year outside the US—you could say that I waded into the pool, rather than just diving in.

The passage of the first of the three recent “exit tax” laws by Congress in 1996 had alerted me to how high-stakes the US government regarded full expatriation to be—and inclined me toward doing so.

I reasoned that if they were that anxious to discourage people from leaving, it might well be time to seriously consider doing so.

Still, for about another decade, I wasn’t in a good position financially or logistically to do so, although I did begin seriously collecting more information about residency abroad, second passports, etc.

Shortly after my financial and logistical impediments cleared up, Ron Paul began achieving astounding success in the early phases of the 2008 presidential campaign. Encouraged once more at the prospect of there perhaps being a chance to turn things around after all, I put my international plans on hold and devoted nearly the entire first three quarters of the year to his campaign.

But the unremitting ferocity with which mainstream Republicans opposed our every effort led me to renew my efforts to abandon the sinking ship.

Another imperative for me has been the maxim “silence implies consent”—that is, by not acting (especially now that I was in a reasonably good position to do so) to separate myself from the manifest evils of the regime in DC, I would continue granting it my consent.

So, believing at that time (incorrectly, as it turns out) that you had to have another passport before you could give up US citizenship, I settled on the economic citizenship of the Commonwealth of Dominica, which is the quickest legitimate and least-expensive way to clear that hurdle.

I engaged a US-based consultant/agent to undertake the process of applying for Dominica’s program—something I definitely recommend.

Even though the agent may not want to hold your hand the whole time or answer every last question you may have, he or she can be quite helpful in navigating any significant rough spots or ambiguities. But be careful: the fees can mount up quickly. Keep in mind that obtaining a second citizenship (so you won’t be “stateless” and unable to travel after giving up your US citizenship) and the actual Relinquishment/Renunciation are two distinct phases (there’s a third expatriation phase, if you will be a “Covered Expatriate” and have to deal with the “mark to market” exit tax). You’ll likely be expected to pay fees to an advisor/agent for each phase, unless you spring for a (much more expensive) “package deal.”

Do be careful to choose only a legitimate agency—there are any number of dubious ones offering their “services” on the Internet. If in doubt about one you’re considering, you should inquire directly to the government officials of your chosen country whether that agency is in good standing with the officials there.

Initially, it was expected to take about three months to receive the Dominica passport, after all the required documents and preliminaries had been done.

But even as I got those things ready to submit (the required FBI criminal check was routinely quoted as taking up to 12 weeks at that time), the expected approval and completion dates were being pushed out at least several more months.

I had originally considered doing the St. Kitts program, which offered a considerably more useful passport—visa-free entry to all of the EU, as well as to Canada, which is about two dozen more countries than the Dominica passport allows.

So faced with a possibly quite extended delay in getting the Dominica passport and by now having a fair amount of experience in making such an application, I decided to apply for the St. Kitts one as well—and without the additional expense of a consultant/agent.

Since most of the documents and preliminaries I had done for Dominica were also needed for the St. Kitts application, I got the St. Kitts one done much sooner and had everything for it filed about a month after filing for the Dominica one. In the end, the St. Kitts passport was issued about three months before the Dominica one.

With the passport hurdle soon to be cleared, I had to make financial preparations. Not so much on account of the exit tax itself, but much more because of the very punitive, but much less known Section 2801 gift/inheritance tax imposed on all post-expatriation gifts and/or bequests to “US persons” by a “covered” expatriate (which I have the dubious pleasure of being).

[Editor’s Note: The term “covered expatriate” refers to the former US citizens who qualify to be stung with the exit tax. See this IRS article for more details.]

Because most of my low-to-mid seven-figure wealth had already been taxed at least once (and also having considerable loss carry-forwards ensuing from the aftermath of the 2008 panic), I was not facing much of an exit tax liability itself.

Once I had the passports in hand, but well before I had finished financial preparations, I made the first of the two visits to a US embassy or consular office abroad required for the actual renunciation process.

On the first visit, you must allow the consular staff to inform (lecture?) you about the “grave” consequences and irrevocability of what you seek to do; and you must assert to them that you understand what you are doing, that you really do intend to do so, and do not expect to retain any rights or privileges of US citizenship.

However, you are not allowed to complete the renunciation process at that first visit. You must go away for at least a short while and then come back on a second appointment, “to be sure you really want to do this.”

In my case, the consular official whom I met with on that first visit did not try very much to dissuade me, nor did I have any difficulty convincing her that I had thought about it extensively and knew what I was seeking to do.

Another half-year elapsed before I finished all the required property transfers into irrevocable trusts (to avoid Section 2801 gift/inheritance tax), after which I was finally ready for my actual expatriation appointment.

There are actually two somewhat distinct procedures by which you can give up US citizenship: relinquishment or renunciation. The State Department forms and consular staff procedures are similar, but not identical, for both ways.

Renunciation is the more affirmative way, and may be preferable for that reason alone.

Professional and informal advisors have differing opinions on which is better—and even whether there’s any substantive difference at all—apart from the $450 fee now required for a Renunciation filing (no fee at all is currently required for filing a Relinquishment—if one is in a position to choose that route).

There are no differences in IRS/tax consequences, and it’s said that the State Department makes no distinction between those who relinquish versus those who renounce.

But the fact remains that there are the two different procedures, and some knowledgeable people do recommend relinquishment (if one’s situation permits using that method) instead of renunciation.

Be aware though that pursuing a relinquishment requires the applicant to demonstrate to the satisfaction of the State Department people involved (both in the embassy/consular office and the application reviewers in Washington), that the applicant’s “potentially expatriating act” (which is usually the act of obtaining citizenship in another country) was truly done “with the intent to give up US citizenship” at the time of “performing the potentially expatriating act.”

In contrast, making a renunciation filing, which involves performing an Oath of Renunciation before a consular officer, provides convincing prima facie evidence of intent to give up US citizenship.

The State Department may reject a renunciation filing only if there’s clear evidence that the applicant was under some sort of duress to take the oath, or that the would-be renunciant intends to retain any prerogatives of US citizenship (such as continuing to reside in the US without obtaining any residency visa/permission as an “alien”).

Because so much time had elapsed since my first visit, I had to re-do it. Mercifully, the consular staff allowed me to return quite soon for the actual renunciation process.

There are numerous reports of delays of weeks to months in getting appointments (for either or both of the two required visits) at many of the busier embassies. I have personal knowledge of an embassy in a major Asian city requiring a two-week interval between an applicant’s first and second renunciation visit regardless of how full or slack its appointment calendar was.

A note about embassy/consular office practices: The expatriation requirements and procedures are stated in fairly thorough detail in in Volume 7, chapter 12 of the State Department’s Foreign Affairs Manual (FAM).

In practice though, each embassy/consular office seems to operate with a fair amount of discretion.

As just one example, FAM explicitly states that an embassy or consular office must allow any US citizen to expatriate who applies there to do so. Yet I was told by consular staff in one major Asian embassy that it refuses to let anyone who is not a legal resident of that country expatriate at that embassy.

Though they’re primarily focused on the plight of the many Americans who permanently moved to Canada, the Isaac Brock Society maintains an excellent website. It keeps an extensive—if anecdotally based—log of people’s expatriation experiences at various embassies/consular offices around the globe.

The actual process of formally doing the renunciation was straightforward and was conducted without any further hassle or delay at my next appointment.

 

How I Renounced My US Citizenship and Why, Part II

 

By Citizen of the World

There are two forms for the applicant to fill out: DS-4079—a questionnaire about the applicant’s intentions to give up US citizenship; and DS-4081—a “Statement of Understanding” (that the applicant knows and understands the consequences of giving up US citizenship, and that doing so is irrevocable). DS-4079 is technically only for a “Relinquishment” filing, but may also be requested for a “Renunciation” filing. For a Renunciation proceeding (but not for a Relinquishment), the consular officer also prepares DS-4082, the Oath of Renunciation. The Oath is administered orally, after which the applicant as well as the consular officer signs the DS-4082.

Then the consular officer prepares a DS-4083, Certificate of Loss of Nationality (CLN). But the applicant will not be given a copy of the CLN at this time, as the application must first be approved by a State Department bureau in Washington. Embassy/consular staff were careful to remind me that my expatriation would not be finalized until these documents were reviewed in Washington—in particular my CLN, and my application was approved in Washington.

The time necessary for that State Department review process apparently has varied quite widely in recent years. Its duration may also depend at least somewhat on the embassy or consular office where one makes their expatriation application (perhaps taking longer from embassies with higher expatriation caseloads). Again, it may be useful to shop around among various embassies/consular offices which may be relatively accessible to an expatriation-seeker. The Isaac Brock website may be a very useful resource in this regard.

In my case, approval of my renunciation was fairly prompt—only about a month. As soon as the embassy or consular office receives confirmation from the State Department in Washington that the applicant’s filing has been approved, the embassy/consular office will provide the applicant an approved, sealed copy of the CLN.

For a renunciation, the effective date of expatriation is the date the Oath of Renunciation was performed; but for a relinquishment, the effective date of expatriation—as far as the State Department is concerned (but not the IRS)—is the date the “potentially expatriating act” (such as obtaining citizenship in another country) occurred. The IRS considers one’s expatriation date to be the date the applicant completes his or her filing with the embassy/consular office—provided only that that filing is subsequently approved by the State Department.

Of course, the “potentially expatriating act” may have occurred quite some time before one’s expatriation filing is made—but in such a case, it’s important for the person seeking to expatriate to avoid availing himself of any significant privileges/benefits of US citizenship, such as voting or using his or her US passport.

The State Department seems to have developed formulaic criteria for whether an applicant really intended to give up citizenship at the time they performed the “potentially expatriating act.” Even if one really did intend at the time one did the “potentially expatriating act” to give up citizenship and declares so in the application, the State Department will apparently refuse to accept that fact, if the person subsequently “continues to avail oneself” of any “significant”—whatever that means—benefits of US citizenship.

Once you’ve succeeded in expatriating, it will be important to be able to produce your CLN at various times in the future, as there will be no other official document you can offer as proof that you really did give up US citizenship. As FATCA and similar measures eventually become widespread (which unfortunately seems much more likely than not), the few remaining foreign financial institutions which have continued to accept US individuals as clients will dwindle further. So providing your CLN will likely become essential to open or even retain already existing financial accounts.

You should probably make several good copies of your CLN, including a high-resolution color scan (quite useful for online purposes). Sometimes it may be important to have some sort of notarization or other official recognition of it. You may want to do that sometime when you’re in the US, as notaries abroad tend to be a lot more expensive, less prevalent, and may refuse to even deal with documents not originating in their own country. Because loss of citizenship is irrevocable, there is logically no expiration to the CLN, so it should not matter when a copy of it is notarized. But alas, bureaucrats everywhere are not well known for their reliance on logic.

Once you’ve been notified that your expatriation application has been approved in Washington, you will be able to begin the process of applying for a visa to enter the US, if you wish to—that is, if you don’t hold a passport from a country on the US visa waiver list. Some people advise waiting for some time before applying for a visa, but there’s no formal requirement to do so.

Do keep in mind that the State Department considers that every applicant for a visitor visa to the US has the burden of proving (to the consular officials where the visa application is made) that the applicant will not try to stay illegally in the US. One might think that an expatriate, having gone to the considerable trouble of giving up citizenship, would be highly unlikely to want to stay too long in the US—but there’s no evidence that the State Department recognizes such an argument. One factor which does lend considerable support to an applicant’s (implied) assertion that they will not try to stay illegally in the US is to have “substantial ties” to another country—residency, social and/or familial ties, etc.

There’s no hard and fast requirement to apply for a US visa only at your “home”-country US embassy or consular office, but it’s generally considered better to do so. For instance, it’s likely easier to provide evidence of one’s substantial ties to that other country from within that country (and easier for the consular staff there to verify that evidence).

One very critical point to understand is that you should NEVER state that you are expatriating to avoid taxes. It could end up complicating matters if you ever intend to return to the US.

If your dossier with the US government states that you renounced for tax purposes, that information should be assumed to be readily available to any number of agencies—including those dealing with visas and immigration—and likely could be used to deny you a visa or otherwise deny entry into the US.

Although the authority to exclude a person from re-entering US on that basis is of questionable validity, and formal regulations on this have never even been proposed or implemented, State Department guidance to overseas posts does explicitly state this as a reason to reject a visa application.

The increasingly great difficulty (largely due to FATCA, FBAR, and Form 8938 reporting requirements) of trying to lead a normal life while living overseas as a US citizen is—and ought to be—reason enough for many to give up their US citizenship.

Some experts advise against giving any reason for why you’re expatriating in any of your interaction with US consular officials at any point during the expatriation process—and particularly in any of your responses on the DS-4079 Questionnaire. But these responses may be useful later on to have established that one did have substantial non-tax-avoidance reasons for expatriating. In any case, it would probably be best not to express opposition to the regime in DC too strongly or explicitly as the reason for expatriating—even if that is a major factor in one’s decision.

Do keep in mind that visa applicants are required to have a face-to-face interview with a US consular agent before a visa can be approved. The application (using form DS-160) must be completed using the State Department’s online system. The interview itself may be conducted in a more or less assembly-line manner, in a bank-teller-window-like setting. The main purpose of the interview requirement seems to be to assess the general nature of the applicant and his or her situation—and to attempt to ferret out any adverse factors for which US officials there might want to reject the application (such as lacking strong enough ties to one’s new home country, or an actual—or even fleeting—thought on the applicant’s part to remain illegally in US).

The lead time for getting the interview appointment will vary considerably by location and time of year, ranging anywhere from just one day up to several weeks, maybe even months. Consult the online appointment calendar of the embassy/consular office where you plan to submit your application and try to avoid applying during whatever peak periods may exist there.

It will probably only take a few business days after successfully completing the interview to receive your passport back with your visa. You’ll be advised at the end of the interview whether or not your application is being recommended for approval; apparently an application is very rarely rejected after a successful interview.

The parameters of any US Visitor visa you may be issued—its validity period (in years), number of entries allowed, and maximum length (in days or months) of each visit—will depend on the passport under which you apply for that visa.

It’s not very easy to locate country-specific State Department policy on these parameters, but this page on the State Department’s website has a selection box to check at least the default visa validity period and default number of entries allowed for any particular country. Unfortunately, this page has no information about the default length of stay permitted for US visa holders of a particular nationality.

(Editor’s Note: See the VisaHQ website to see what kind of visa passport holders from country X need to enter country Y while living in country Z.)

Another point to note: regardless of whether you enter the US under the visa-waiver rules or under your own visa, doing a “visa run” (a quick trip to a nearby country to reset one’s visa or visa waiver period) is not so easy. US Immigration authorities require you to perform a “substantial” departure, meaning you must go at least as far away as continental South America—no quick trips to Canada, Mexico, nor even any Central American or Caribbean country!

Without question, you’re likely to have some fairly keen feelings at least the first few times when you come back to the US as an “alien” (what a horrible word—as if people living elsewhere are some sort of suspicious or even dangerous intruders). When you come back to the US, you’re likely to be quizzed a little bit by the immigration officer (and maybe also the Customs inspector), but in the half-dozen or so times I’ve been back so far, I’ve not been given a hard time at all.

Of course, past performance is no guarantee of future results, so one will always face the risk of more hassles down the road. But given that US border authorities already claim that even US citizens have no Constitutional rights at entry points, there are risks for everyone.

I didn’t expatriate because I expected it to make my life easier overall—it has not made it easier overall (at least for me). Yes, some things are easier now: I can open financial accounts overseas and invest directly in overseas securities, many of which have become effectively off limits to US individuals.

Also, I sleep better at night, relieved to no longer be even an unwilling, passive participant in the ever-escalating wars against the growing assortment of “evils” declared by Washington. And I no longer have to worry about making an honest mistake or omission on any of the ever-increasing IRS reporting requirements. But it’s at least somewhat more difficult to travel—this depends a lot on the other passport(s) one has.

Another significant trap to be wary of is the IRS’s Substantial Presence criteria, which risks you getting sucked back into the whole US tax regime (including all the overseas reporting requirements). This occurs if you stay too long while visiting in the US. Not only must one stay in the US no more than 182 days in any one year, you must also ensure that your weighted average number of days within the US over the most recent three years isn’t too high.

There are several other ways one may be required to continue dealing with the IRS after successfully expatriating, especially if you continue to have any US-based assets. At a minimum, in the first year after expatriation, it will be necessary to file Form 8854.

If you are considered a “covered expatriate”, preparing Form 8854 (and both of its associated 1040 forms) will be at least fairly complicated, and will almost certainly require the services of one of the small number of professionals who are experienced with Form 8854 and the “mark to market exit tax.”

I’m still in the early days of my post-expatriation life—really far too soon to judge with any certainty whether I made the right decision (even according to my own thinking, let alone what anyone else thinks). But so far, I’m satisfied that I did do the right thing—for myself. The “silence implies consent” credo is very deeply ingrained in my outlook; this tends to trump the drawbacks, at least for myself. I find implied endorsement of this thinking in Nassim Taleb’s Antifragile, especially in a number of passages in chapter 22. In the end, expatriation is a momentous decision and will be unique for each person considering it—there’s no one right answer for everyone.

23 Reasons to Be Bullish on Gold

By Laurynas Vegys, Research Analyst

It’s been one of the worst years for gold in a generation. A flood of outflows from gold ETFs, endless tax increases on gold imports in India, and the mirage (albeit a convincing one in the eyes of many) of a supposedly improving economy in the US have all contributed to the constant hammering gold took in 2013.

Perhaps worse has been the onslaught of negative press our favorite metal has suffered. It’s felt overwhelming at times and has pushed even some die-hard goldbugs to question their beliefs… not a bad thing, by the way.

To me, a lot of it felt like piling on, especially as the negative rhetoric ratcheted up. Last year’s winner was probably Goldman Sachs, calling gold a “slam-dunk sale” for 2014 (this, of course, after it’s already fallen by nearly a third over a period of more than two and a half years—how daring they are).

This is why it’s important to balance the one-sided message typically heard in the mainstream media with other views. Here are some of those contrarian voices, all of which have put their money where their mouth is…

• Marc Faber is quick to stand up to the gold bears. “We have a lot of bearish sentiment, [and] a lot of bearish commentaries about gold, but the fact is that some countries are actually accumulating gold, notably China. They will buy this year at a rate of something like 2,600 tons, which is more than the annual production of gold. So I think that prices are probably in the process of bottoming out here, and that we will see again higher prices in the future.”

• Brent Johnson, CEO of Santiago Capital, told CNBC viewers to “buy gold if they believe in math… Longer term, I think gold goes to $5,000 over a number of years. If they continue to print money at the current rate, I think it could be multiples of that. I see a slow steady rise punctuated with some sharp upward moves.”

• Jim Rogers, billionaire and cofounder of the Soros Quantum Fund, publicly stated in November that he has never sold any gold and can’t imagine ever selling gold in his life because he sees it as an insurance policy. “With all this staggering amount of currency debasement, gold has got to be a good place to be down the road once we get through this correction.”

• George Soros seems to be getting back into the gold miners: he recently acquired a substantial stake in the large-cap Market Vectors Gold Miners ETF (GDX) and kept his calls on Barrick Gold (ABX).

• Don Coxe, a highly respected global commodities strategist, says we can expect gold to rise with an improving economy, the opposite of what many in the mainstream expect. “You need gold for insurance, but this time the payoff will come when the economy improves. In the past when everything was falling all around you, commodity prices were soaring out of sight. We had three recessions in the 1970s and gold went from $35 an ounce to $850. But this time, gold is going to appreciate when we start getting 3% GDP growth.”

• Jeffrey Gundlach, bond guru and not historically known for being a big fan of gold, came out with a candid endorsement of the yellow metal: “Now, I kind of like gold. It’s definitely very non-correlated to other assets you may have in your portfolio, and it does seem sort of cheap. I also like the GDX.”

• Steve Forbes, publishing magnate and chief executive officer of Forbes magazine, publicly predicted an impending return to the gold standard in a speech in Las Vegas. “A new gold standard is crucial. The disasters that the Federal Reserve and other central banks are inflicting on us with their funny-money policies are enormous and underappreciated.”

• Rob McEwen, CEO of McEwen Mining and founder of Goldcorp, reiterated his bullish call for gold to someday top $5,000. “We now have governments willing to seize their citizens’ assets. We now have currency controls on the table, which we haven’t seen since the late 1960s/early ’70s. We have continued debasement of currencies. And the economies of the Western world remain stagnant despite enormous monetary stimulation. All these facts to me are bullish for gold and make me believe the price will bounce back relatively soon.”

• Doug Casey says that while gold is not the giveaway it was at $250 back in 2001, it is nonetheless a bargain at current prices. “I’ve been buying gold for years and I continue to buy it because it is the way you save. I’m very happy to be able to buy gold at this price. All the so-called quantitative easing—money printing—by governments around the world has created a glut of freshly printed money. This glut has yet to work its way through the global economic system. As it does, it will create a bubble in gold and a super-bubble in gold stocks.”

And then there’s the people who should know most about how sound the world’s various types of paper money are: central banks. As a group, they have added tonnes of bullion to their reserves last year…

• Turkey added 13 tonnes (417,959 troy ounces) of gold in November 2013. Overall, it has added 143.6 tonnes (4,616,847 troy ounces) so far this year, up 22.5% from a year ago, in part thanks to the adoption of a new policy to accept gold in its reserve requirements from commercial banks.

• Russia bought 19.1 tonnes (614,079 troy ounces) in July and August alone. With the year-to-date addition of 57.37 tonnes—second only to Turkey—Russia’s gold reserves now total 1,015 tonnes. It now holds the eighth-largest national stash in the world.

• South Korea added a whopping 20 tonnes (643,014 troy ounces) of gold in February, and now carries 23.7% more gold on its balance sheet than at the end of 2012.“Gold is a real safe asset that can help (us) respond to tail risks from global financial situations effectively and boosts the reliability of our foreign reserves holdings,” said central bank officials.

• Kazakhstan has been buying gold every month, at an average of 2.4 tonnes (77,161 troy ounces) through October. As a result, the country’s reserves have seen a 21% increase to 139.5 tonnes from a year ago.

• Azerbaijan has taken advantage of a slump in gold prices and has gone from having virtually no gold to 16 tonnes (514,411 ounces).

• Sri Lanka and Ukraine added 5.5 (176,829 troy ounces) and 6.22 tonnes (199,977 troy ounces) respectively over the past year.

• China, of course, is the 800-pound gorilla that mainstream analysts seem determined to ignore. Though nothing official has been announced by China’s central bank, the chart below provides some perspective into the country’s consumer buying habits.

China ended 2013 officially as the largest gold consumer in the world. Chinese sentiment towards gold is well echoed in a statement made by Liu Zhongbo of the Agricultural Bank of China: “Because gold has capabilities to absorb external economic shocks, growth of its use in the international monetary system will be imminent.”

And those commercial banks that have been verbally slamming gold—it turns out many are not as negative as it might seem…

• Goldman Sachs proved itself to be one of the biggest hypocrites: while advising clients to sell gold and buy Treasuries in Q2 2013, it bought a stunning (and record) 3.7 million shares of GLD. And when Venezuela decided to raise cash by pawning its gold, guess who jumped in to handle the transaction? Yes, they claim the price will fall this year, but with such a slippery track record, it’s important to watch what they do and not what they say.

• Société Générale Strategist Albert Edwards says gold will top $10,000 per ounce (with the S&P 500 Index tumbling to 450 and Treasuries yielding less than 1%).

• JPMorgan Chase went on record in August recommending clients “position for a short-term bounce in gold.” Gold’s price resistance to Paulson & Co. cutting its gold exposure, along with growing physical gold demand in Asia, were cited among the main reasons.

• ScotiaMocatta‘s Sunil Kashyap said that despite the selloff, there’s still significant physical demand for gold, especially from India and China, which “supports prices.”

• Commerzbank calls for the gold price to enter a boom period this year. Based on investment demand from Asian countries—China and India in particular—the bank predicted the yellow metal will rise to $1,400 by the end of 2014.

• Bank of America Merrill Lynch, in spite of lower price forecasts for gold this year, reiterated they remain “longer-term bulls.”

• Citibank‘s top technical analyst Tom Fitzpatrick stated gold could head to $3,500. “We believe we are back into that track where gold is the hard currency of choice, and we expect for this trend to accelerate going forward.”

None of these parties thinks the gold bull market is over. What they care about is safety in this uncertain environment, as well as what they see as enormous potential upside.

In the end, the much ridiculed goldbugs will have had the last laugh.

We can speculate about when the next uptrend in gold will set in, but the action for today is to take advantage of price weakness. Learn about the best gold producers to invest in—now at bargain-basement prices. Try BIG GOLD for 3 months, risk-free, with 100% money-back guarantee. Click here to get started.

The Top 6 Reasons Why Everyone Needs a Second Passport

By Nick Giambruno, Editor, International Man

Doug Casey has said over and over that spreading your political risk beyond one jurisdiction is the single most important thing he can recommend today.

Obtaining a second passport and citizenship in another country is a critical part in heeding Doug’s advice.

This is because it’s a fundamental step towards minimizing the political risk of being subjected to the whims of any single government.

The political diversification benefits that come with obtaining a second passport are universal and prudent for anyone in the world to obtain… especially those under a desperate (fiscally or otherwise) government.

Here are the top six reasons why everyone needs a second passport.

Reason #1: More Internationalization Options

Obtaining a second passport can literally open the door to a world of internationalization options for your assets and income that are off limits to citizens of certain countries. This is especially true for Americans, who are often treated as if they have the plague when they attempt to open foreign financial accounts and are increasingly being forced to close the ones they already have.

Due to the ever-growing pile of regulations, foreign banks and brokerages are making the logical business decision that the costs of compliance outweigh any benefits of having Americans as clients. Opening a foreign financial account as an American citizen ranges from being impossible to very difficult in most circumstances.

When you consider the totality of it, these vast regulations amount to a soft form of capital controls, which will likely turn into overt capital controls at some point in the future.

Obtaining a second passport can also make purchasing real estate in foreign countries easier. For example, while it is an excellent place to consider for a bolt-hole, Switzerland is a notoriously difficult place for a foreigner to purchase real estate. However, certain foreigners (EU citizens) have fewer restrictions imposed on them others.

Reason #2: More Visa-Free Travel

One characteristic of a good passport is how much visa-free travel it allows. Applying for a visa that has to be approved before your trip (as opposed to being able to obtain it at the border) is a real hassle. Having to jump through hoops in advance of a trip can be a frustrating, time-consuming, and costly process.

Brazil, Chile, and Argentina all collect a visa fee (of about US$160) from travelers who present a US passport.

According to a recent study, Finnish and Swedish passports offer visa-free travel to the most countries. Not surprisingly, a country like Afghanistan has one of the least useful passports. You can find more information on this study as well as the rankings of countries according to the visa-free access of their passports here.

Reason #3: Avoid Foreign Policy Blowback

If your home government has developed a bad habit of sticking its nose in the internal affairs of other nations, it could make you a target should you happen to be in the wrong place at the wrong time. Like an upscale shopping mall in Kenya in late September 2013.

There are, of course, passports that have minimal foreign policy blowback risk. For example, when was the last time you saw Swiss passport holders targeted?

Reason #4: Preempt Travel/People Controls

A second passport can also come in handy when a government decides to starting treating its own citizens as beef cows instead of milking cows (i.e., when they need more soldiers for war) or if passport restrictions and other types of people controls are implemented.

In any case, it prevents your home government from basically placing you under house arrest by revoking or cancelling your passport for any reason it sees fit.

The Syrian government, for example, previously refused to renew the passports of Syrians abroad whom it suspected of being associated with the opposition. This is not surprising and should have been completely predictable. Any government could and would behave in a similar manner as they all have the ability to revoke the citizenship and/or passport of their citizens at a moment’s notice under any pretext that they find convenient. Just look at how the US cancelled Edward Snowden’s passport by fiat.

It is not inconceivable that the US government would make it more difficult for Ron Paul supporters and libertarians to travel internationally one day in the future. Heck, they have already taken the first step and labeled them potential domestic terrorists.

The bottom line is that if you hold political views that the establishment of your home government does not like, don’t be surprised when they decide to restrict your travel options. In this case, having the political diversification that comes from having a second passport is even more important.

Reason #5: You Don’t Have to Live Like a Refugee

It’s like how the old Tom Petty song goes… “You don’t have to live like a refugee.”

Having a second passport ensures that you will always have another place to potentially call home, another place where you will always have the legal right to live and work. In worst case scenarios, a second passport guarantees that once you get out of Dodge, you won’t have to live like a refugee.

Having citizenship in another country gives you the legal right to live and work there and possibly other countries. EU citizens have the right to live and work in the 28 member countries.

Reason #6: Renunciation

In all likelihood, you will need a second passport should you decide to take the drastic step of renouncing your citizenship. This allows you to reap huge tax and regulatory benefits if your home country burdens its citizens with suffocating and inescapable tax policies.

It should be noted that the US has what amounts to an “exit tax” for citizens who renounce and meet certain conditions. This puts a premium on renouncing before you qualify to be stung with the “exit tax.” It is an especially attractive option for entrepreneurial and internationally-mobile young Americans who have a large portion of their potential earnings still in the future.

Of course, few will actually follow the path of Facebook co-founder Eduardo Saverin or singer Tina Turner and take the extreme step of renunciation. And you certainly don’t need to. There are MANY other ways you can internationalize and reduce your political risk.

Not Easy, But Necessary

Unfortunately, there are no paths to obtaining a legitimate second passport that are at the same time fast, easy, and inexpensive.

However this does not diminish the necessity of doing so. Political risk is growing in most parts of the world (especially the West). This is especially true for countries in deteriorating fiscal health, which will predictably turn to increasing measures to squeeze their citizenry for every penny they can get away with.

You have probably noticed there is a lot of misinformation and bad advice out there regarding second passports, which, if followed, could likely end up causing you significant problems and limiting your options. Your goal should be the opposite: minimizing your problems and expanding your options.

It is essential in these shark-infested waters to have a trusted resource like Casey Research to provide you with reliable information. You can find our top picks for the best countries to obtain a second passport in and how to do it here.

Busting Economic and Natural-Resource Myths

By The Gold Report

The Gold Report: Why is the theory of tapering or turning quantitative easing (QE) off a myth, and who really benefits from QE?

Rick Rule: My view—as an investor, not an economist—is that QE is misnamed. I think it’s another way of saying counterfeiting. It exists in large measure because we’re running a trillion-dollar deficit and, while we can hoodwink investors into funding two-thirds of it, we need to print away the last third.

TGR: What are the consequences of turning off QE?

Louis James: Federal Reserve Chairman Ben Bernanke said himself that he had certain criteria he wanted to see before tapering—employment in particular. Those have not been met. Employment figures have improved, but only in—I guess the technical term would be “crappy” jobs. Long-term employment, the middle class’ bread and butter, is not better.

TGR: Rick, you defy common sense and argue that bull markets are bad and bear markets are good, but it doesn’t feel that way.

RR: JT, at the risk of being sexist, women are normally more rational shoppers than men. Think about the stock market as a mall.

In the mall, the store on the left-hand of the entrance has a big flashing sign that says, “Bear Market Merchants All Goods 70% Off, No Reasonable Offer Refused, Come Back Tomorrow—Prices May Be Lower.” The store on the right-hand side has a tiny sign that says, “Bespoke Bear Market Merchants, No Deals Ever, High Margin for Merchants, Don’t Even Think About Asking for a Deal, Prices May Be Higher Next Week.”

If you’re going to buy a pair of shoes, which store would you go to? This is a no-brainer. When people buy physical goods, they act rationally. When they buy financial goods, they want to overpay. It’s totally irrational, and it’s extraordinarily common. If you want to become wealthier, why wouldn’t you buy financial assets when they’re on sale?

TGR: Staying with the mall analogy, does that suggest that people are afraid stocks will be on even deeper sale tomorrow?

Marin Katusa: You have to look at the timeframe. This is a great market if you’re an accredited investor and have an account with someone like Rick Rule or you subscribe to the International Speculator and follow the right management teams. Today, you can invest in deals with five-year full warrants that would not have been available three years ago. Rick and I have been in meetings where the venture teams laughed at me when I requested full warrants. Rick just said, “Bite your lip, smile, and wait.” And he was right.

If you’re buying stock today in hopes that the market will go up the next day, you’ll be in a lot of pain. But if you have a two- to five-year timeframe, you can get guys like Bob Quartermain and Lukas Lundin on sale.

LJ: What would you give to go back in time and buy Apple just after the Apple II came out? Or to buy Microsoft when DOS was new?

Over the course of the last decade—what I think of as the first half of this great bull cycle—billions of dollars have gone into the ground and done good work.

Companies with 10 million ounces of high-grade gold in a safe mining jurisdiction are on sale below IPO prices. Some companies with excellent management and assets in hand are selling for less than cash value. You can buy these companies now, instead of looking for the next Apple or Microsoft.

RR: Words like “want” and “hope” in speculation are truly four-letter words, profanities. Having a stock in your portfolio that cost $200,000 and has a current market valuation of $40,000 is unfortunate, but irrelevant. Investors need to take advantage of their education and do their best with the situation at hand. Right now, things are cheap. When things are cheap you’re supposed to buy. In bull markets, when things are expensive, you’re supposed to sell.

Right now, buying is easy because you have no competitors. In a bull market, selling is easy because everybody is a buyer. If the market is desperately looking for bids and you are scared to death because your stocks can’t catch bids, you have to bid. They say the market was desperate for asks, but this market is desperate for bids.

TGR: Some have said this the end of the commodity supercycle. Is that a myth? And is it more or less of a myth in some sectors than others?

RR: The narrative that existed in 2009-2010, when the commodity supercycle was the currency of all financial thinking, is unchanged. The first part of that narrative was founded on the idea that world population growth was taking commodity consumption higher. World population growth is not over.

The second part of the narrative was that as poor people gained more freedom, they got richer and consumed more. Political liberalization in emerging frontier markets has continued, and people are wealthier and are consuming more.

A third part of the narrative was that Western consumers had lived beyond their means and as a consequence were debasing the denominators, the fiat currencies. If you debase the denominator, the nominal value of stuff would go up. We have not stopped debasing the denominator.

The entire narrative associated with the resource-industry bull market is intact. Nothing has changed except the price. A cyclical decline in a secular bull market is a different way of describing a spectacular sale, for people who understand that the narrative hasn’t changed.

TGR: Are there some sectors that still feel as if it’s a commodity supercycle?

MK: Definitely. Look at oil.

RR: But your readers don’t want to look for hot sectors, because they are overpriced. They want to look for cold sectors. They want to find the sector, management team, or the company that’s going to be hot.

TGR: If oil is hot right now, what is going to be hot?

MK: From the energy side, I think within three years uranium will be hot.

TGR: Why the three-year timeline?

MK: There are three major catalysts. First is the end of the US-Russia Highly Enriched Uranium Purchase Agreement (HEU). The last shipment will happen at the end of 2013.

Second is the transitional agreement, in which the Russians will provide up to 50% of the uranium on a new pricing metric than the HEU agreement. Only this time, the Russians have new dance partners: Saudi Arabia, China, India, Korea, even France. The reality is the Americans will have to pay more for uranium from the Russians.

Third, nuclear reactors are not all being taken down; they’re being built. Japan plans to bring its reactors back online, just not on the timeframe the junior resource sector wants them to. The Japanese cannot afford to pay the most expensive electricity prices in the world and stay competitive. They have no choice but to move forward with nuclear power.

TGR: Is the end of HEU already priced in to uranium?

MK: Yes, both because the market is determining what it’s worth today and because Japan shut down 40 nuclear reactors. That’s a black-swan game-changer that shifted everything.

Yet, the long-term price is 50% higher than the spot price, and more than 90% of the uranium being consumed and traded is based on the long-term price. That’s the equivalent of saying gold today is $1,300/ounce, but if you want to take delivery in three or four years—which is what nuclear utilities do for uranium—you have to pay $1,900/oz. Or copper at $4.50/pound if you want delivery in five years. That’s the situation in uranium today.

TGR: Louis, which sector are you looking forward to?

LJ: There’s talk on the streets about helium, although I’m not sure I want to move in that direction. I’m happier focusing on something right in front of me and that I understand. Finding a company that has a multimillion-ounce, high-grade deposit and is on sale at half price is similar to going into the supermarket and finding the thickest, most beautifully marbled T-bone steak, fresh cut today, on sale for half off. Why bother with hamburger of unknown quality?

TGR: We keep hearing that we’ve hit a bottom, which would imply that the market is moving up. However, Rick, you have described it as a bifurcated market in which the bad stocks will continue to sink, which would be a good thing. How do we know which companies will sink and which will revive?

RR: That’s a critical question. Before your readers classify stocks, they need to classify themselves. Are they the type of person who will put enough time and attention into securities analysis to compete on their own? Or do they need other people to help them compete?

While securities analysis and stock selection in the junior market is imperfect, it can be done. It requires understanding the stock. If you’re not willing to understand the stock, you need an advisor.

TGR: How many hours does that work take? What questions should investors be asking?

RR: Speculators running their own portfolios without advice should limit the number of stocks in the portfolio to the number that they can spend two or three hours a month working on. That means reading every press release, proxy, quarterly, and annual report. Read the president’s message and measure it against what he said the company would accomplish over the year.

Speculators unwilling to do that need to hire somebody who will. That may mean subscribing to one of the trading services offered by Casey or hiring an organization like Sprott to be a broker or a manager.

Getting to bifurcation and stock selection, if 15% of the stocks are moving higher, 85% are moving lower. You won’t be able to concentrate 100% in either camp, but if you get more right than wrong, you’ll make so much money that the outliers will be irrelevant. If you get it wrong, you’ll lose so much money that you ought to be in some other business.

TGR: Are there fewer brokers walking the streets of Vancouver these days?

MK: Definitely, also fewer analysts and fewer corporate development positions and many fewer investor relations people.

There are more BMWs, Mercedes, and Ferraris on sale, and now more offices becoming vacant.

TGR: Does that mean only the best are left?

MK: Not necessarily.

RR: But it does reduce the population. To be a responsible analyst, you once had to look in a cursory fashion at 4,000 companies. Today, having only 3,000 companies to look at is an advantage.

The three of us look at data in a summary fashion to try and dispose of a company. You look for something to kill your interest. The good news is that the population of timewasters is down by at least a third. That’s unfortunate for their shareholders, but that’s their problem, not ours. Our job is to look after our subscribers or clients.

TGR: Let’s talk about regions. Is it true that the Yukon is remote?

LJ: It’s no more remote now than it was last year. You can’t write off the Yukon or anywhere without looking at and understanding the specifics of individual opportunities. Miners with remote projects that have high enough margins are able to barge or truck diesel fuel in and run gen-sets, etc. If Canadians can mine diamonds in the Arctic Circle, they can mine gold in the Yukon.

Remoteness by itself is not the issue. The issue is margin. If you’re in the Yukon and you’ve got something low grade, with low recoveries and complex metallurgy—don’t call us, we’ll call you. If you have something high grade, open pit, that leaches, tell me more.

TGR: Rick, in your presentation, you talked about platinum and palladium. Is that an area where the supercycle needs to whip things up?

RR: I don’t think it even requires a supercycle. With platinum and palladium, I can look empirically at simple supply and demand. On a global basis, the platinum and palladium industry doesn’t earn its cost of capital. That means one of two things will happen: The price of platinum and palladium will increase, or there won’t be enough platinum and palladium to supply current demand.

In the context of supply, you don’t have to worry about investor inventories because there are almost none. The world supply of existing, finished platinum and palladium is less than one year’s fabrication demand.

The consequence of the industry not earning its cost of capital is that production has fallen by 19% over six years. New mine supply is falling. South Africa itself accounts for 70% of world platinum production and 39% of world palladium production.

In South Africa, the industry has deferred $5 billion in sustaining capital investments; workers are dying and infrastructure is more and more decrepit.

A skilled worker crouching 7,000 feet underground in 105-degree heat in two inches of water makes $700 per month. An unskilled worker who mucks the material on his hands and knees 400 meters from the mine face to the adit makes $200 a month. A migratory worker sustaining a family in the homeland is probably sustaining another family at the mine face. Wages have to go up, but they can’t because the companies don’t earn their cost of capital.

According to the majority of South Africans, social take—taxes and royalties—has to go up, but can’t because companies don’t earn their cost of capital.

Prices have to go up. Platinum and palladium prices can go up because their utility to users is so high. It goes into high-carat jewelry. Platinum goes up a smokestack. Mostly, it goes out a tailpipe.

It costs $200—the cost of a catalytic converter in a new car—to give us the air quality we enjoy today. There’s a social consensus in favor of stricter air-quality standards. If the price of platinum and palladium doubled, the catalytic converter would cost $400 in a $27,000 new car; the demand impact would be de minimus.

LJ: We all know the often-quoted phrase that most of the gold ever mined in the world is still sitting in purified form on the surface in one form or the other. Platinum and palladium are different; they are consumed. I agree with Rick.

I would go one step further regarding South Africa. It’s not just the economics that don’t work; it’s the country itself. It’s a balloon resting on pins. I see platinum and palladium as speculation on South Africa going up in flames, which is an easy bet to take now. I’m sorry for the South Africans, but it’s a bad situation with no easy way out.

TGR: There’s been a lot of talk about the dearth of young, qualified people coming up to take a place in management teams. Has the next generation of managers—and investors, for that matter—left the sector? If so, what will happen?

MK: There’s a significant age gap in our industry. When I was taking geology courses at university, our professor would ask why we were taking this class. There were no jobs. He recommended we go into computers, and a lot of people did.

Unfortunately, good management teams are very difficult to come by. Only 1 in 3,000 projects ever becomes an economic mine, and I’d say investing in the right people is more important than any other factor.

LJ: This scarcity makes the investor’s job a little easier. Just type the CEO’s name in Google and look up his history. Has he done this before? Has he succeeded? Was he an accountant or a used car salesman? Google is one of our primary triage tools.

People is the first of Doug Casey’s famous Eight Ps. If I hear about a story that fits our general criteria, the first thing I look at is management and directors. If I recognize the name of someone who has lied to me or whom I don’t trust, I don’t even look at the project.

TGR: New people coming up need to get experience by being in a successful project. Are there enough successful projects that they’re learning how to do it?

LJ: I don’t necessarily agree with that angle. All experience is good experience. A person can learn a lot from working for a company that does something wrong. It’s having lots of experience, both good and bad, that is so important. The problem is that, unless you get very lucky, you need to have experience to really call shots well, and there are not enough people out there with the decades of experience needed.

On the bright side, because there is money in the field now, geology departments are no longer shutting down; enrollment is up. Supply is improving, but it will be another 5 to 10 years before the supply of highly experienced personnel really improves.

RR: Let’s personalize it for your readers. There are three analysts in the room: an old one and two young ones. I guarantee you that, as a consequence of the bear market they just experienced, the two younger analysts will make their readers more money with less risk in the next bull market.

Youth isn’t enough. You need to have a decade under your belt so that you have lived through the changes. Marin and Louis just lived through the kind of challenges I lived through in the 1980s. They now have the two things needed to survive in this racket: legs and scars.

MK: He’s not joking about the scars.

RR: The transfer of the mantle from the Doug Caseys and Rick Rules of the world to the Marin Katusas and Louis Jameses is under way. The batons are being passed.

TGR: Is the bear market making a better generation of investors? Will they be more patient, have more perspective given what they’ve been through?

MK: If they stick with it. It’s all about timeframe and perspective. The bear market will wash out a lot of investors; do not allow yourself to become a victim. But as Rick said, investors have to mitigate risk to stay alive until the next leg in the bull market.

RR: You’re wrong there, Marin. You have to thrive. The year 2000, which was the market bottom, was one of the best investment years of my life. And 2001 was even better, as was 2002.

A bear market is when you make your money. You don’t get to put it in your pocket until things turn, but you make your money by thriving in bear markets. You don’t thrive in bull markets. You cash the checks. It’s very different.

LJ: I expect this will be a painful experience for a lot of people. Some will learn a lesson, but it will be the wrong lesson. The lesson will be: Don’t invest in commodities; they’re too risky. That lesson will stick until the prices go bananas again, when they’ll give it another try and get taken to the cleaners again.

To buy low and sell high, investors have to be able to sell high, which means they are expecting people to act irrationally when prices are very high—which means they didn’t learn the lesson. It’s unfortunate for our world that human nature is so, but it is so, and investors who ignore the opportunities this creates don’t do anyone any favors.

TGR: Marin, going back to energy, there’s been a lot in the media about the International Energy Agency (IEA) report about energy independence in North America. Will we be the Saudi Arabia of natural gas?

MK: North America is already the Saudi Arabia of natural gas. Unfortunately, so are the Russians.

The report said that if these eight assumptions happen the way we hope, America will become almost energy independent. The media forgot about the eight assumptions, and they got rid of the word “almost.”

The US has done a great job of bringing North American innovation to the shale industry, but the industry has many other challenges to work through.

TGR: Is Saudi Arabia still the Saudi Arabia of oil? Its wells are getting long in the tooth, and the country is building nuclear plants for domestic use.

MK: We’re all asking that question. The Ghawar oil field has been producing oil since before Elvis hit the scene and today produces about half of Saudi Arabia’s oil. There is significant risk in relying on these old elephant deposits that have been producing for more than 50 years.

RR: I agree. What has happened in the US, and to a lesser degree Canada, is unique because our competitive markets still work. For example, 50 or 60 competitors at Eagle Ford tried and failed using various completion techniques, each time getting better and better. Ultimately, Eagle Ford was an extremely messy success.

In most of the world, there’s one quasi-state oil company looking at a basin. There’s no competition trying different solutions. Exporting American or Canadian technology doesn’t work without exporting the messiness of the North American energy-exploration business.

Marin, would exporting technology from Eagle Ford work in Argentina’s Vaca Muerta Shale?

MK: It would take billions of dollars to make it work at Vaca Muerta. A junior company with a $10 million market cap and $500,000 to make management’s salary and payment on their BMWs will never be able to develop this billion-dollar shale potential. It will require a big company, like a Chevron.

TGR: We heard a lot about the potential for crowdfunding to save the resource sector by funding more companies. True?

MK: I’d like to make sure that all of your readers stay the hell away from crowdfunding for the resource sector. I’ve heard it works OK in the tech sector and among the let’s-make-a-movie crowd, where all that is needed is to raise $150,000 for something that may or may not work.

In the resource sector, real exploration cannot be done for $2-3 million. If people want to invest in the sector, go to someone with a track record, someone who knows what he’s doing. Subscribe to Louis’ newsletter and educate yourself. Stay the hell away from crowdfunding for the resource sector.

RR: The last thing the sector needs is more companies. The idea that the crowd would invest $3 million in a de novo project when there are companies out there that have spent $80 million on an existing project, yet have a $6 million market cap is the most counterproductive activity that one could imagine. If there are 3,000 public companies doing exploration on a global basis, we don’t need another 300. We need 2,000 fewer.

LJ: It’s one thing to go directly to the masses with an art project that some snob at the National Endowment for the Arts turned down, but entirely another to do so for a mine project no knowledgeable investor will touch.

TGR: What myth would you want our readers to stop believing in?

LJ: I would like to dethrone the “grade is king” myth. It’s not grade; it’s margin. You can have an exceptionally high-grade deposit in an exceptionally expensive, difficult, or kleptocratic jurisdiction, and it won’t work. You could have a water table that’s so fluid that you spend more money pumping water than mining. There are so many things that can go wrong or add to costs. Too many people believe if a project is high grade, it has to make money. No, it doesn’t. High margin is paramount, not grade.

MK: I think the myth that the commodity bull market is over is insane. We’re nowhere near being over. This is the opportunity of a lifetime. This is when you start doing your homework and investing money.

RR: The idea that bear markets are bad and bull markets are good is bullshit. It’s the other way around. Bear markets are good. Bull markets are bad.

LJ: Bullshit is a technical term.

TGR: I enjoyed talking with the three of you. Thanks.

Hungry for more insights like these? Want specific, actionable recommendations to accompany them? These are the kinds of exchanges that have made Casey Summits must-attend events for resource investors… not to mention why they consistently sell out.

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“The Situation Is Hopeless, But Not Serious”

By Shannara Johnson, Chief Editor

“After listening to some of this morning’s speakers, I made sure to program the number of the suicide hotline into my cell phone,” real estate expert Andy Miller joked at the beginning of his speech.

And legendary natural-resource investor and chairman of Sprott US Holdings, Rick Rule, quipped, “It’s amazing—I actually get to be the positive guy here.”

He summarized the main drift of the conference by paraphrasing behavioral psychologist Paul Watzlawick: “The situation is hopeless, but it need not be serious.”

Rather than a reason to shy away from buying stocks, he reminded the audience, bear markets like the one we’re seeing in gold right now are the greatest opportunity to load up on the best junior resource companies at fire-sale prices. You wouldn’t insist on buying any other product when prices are high and shun it when it’s on sale—so why act differently with stocks?

“You’ve already been through this,” he said, “you’ve been through the pain. Why not hang on a little longer and actually enjoy the gain?”

Recovery—What Recovery?

That there’s pain ahead became abundantly clear during Dr. Lacy Hunt’s presentation, which ripped the rose-colored glasses off even the most blissful ignoramuses and received the vote for “most depressing speech” by many audience members.

HIMCO Executive VP Hunt—a high-profile speaker who served as senior economist at the Dallas Fed and as the chief US economist for banking giant HSBC—presented the dire facts in a pointed, easy-to-understand way. The cheerful title: “How Debt-Induced Monetary and Fiscal Policies Are Undermining the US Economic Prosperity.”

Hunt is convinced that the US economic recovery is a sham. “Consumer spending,” he said, “is at 2%, that’s very low. We’ve seen lower percentages before, but never in a phase of economic expansion.”

He compared economic growth throughout the entire US history with what we’re seeing today. In terms of GDP growth—currently a pathetic 1.6%—we’re only doing marginally better than in the 1930s, during  the Great Depression.

Then he fired off charts with dismal graph lines and numbers, one after another:

• The US birth rate in the last two years is the lowest since the 1920s and will soon lead to redundancies in elementary and then middle schools.
• One out of 6.5 Americans is now on food stamps.
• The number of 25- to 30-year-olds living with their parents is at 36%, an all-time high.
• Federal debt is currently 100% of GDP, and the US government is $60 trillion in the hole on unfunded liabilities—the only way to feel good about this is to look at Europe, which is worse off at $70 trillion.
• Unemployment is not getting better, capital spending is not getting better, and we’re seeing a significant decline in US imports and exports, as well as the average American’s standard of living.

Current Fed policy is making things worse, Hunt said. Corporate profits are down, capital spending and investment is down, and we’re seeing “a significant decline in both US exports and imports.” Median household income has dropped 3% and is now equal to that in 1995, and the personal savings rate is the lowest since 1929.

If the Federal Reserve wants to phase out QE, Hunt said, there’ll be tremendous exit costs. Even though studies from top researchers at Stanford, Princeton, and Berkeley have found that “an expansion of reserves contracts the economy,” the Fed is like a runaway train. It’s now so committed to what it is doing that despite the plethora of negative data, it just won’t stop.

I sort of wish he still worked for the Federal Reserve—it’d be nice if they had at least one person with some common sense on their payroll.

Inflation, Deflation, Depression

James Rickards,  Currency Wars author and senior managing director of Tangent Capital Partners, agreed with Lacy Hunt that all the talk of economic recovery is a bad joke: “If you want to know what a depression feels like, this is it.”

He said most economists have been dead wrong in their recent forecasts because they assume we’re in a normal business cycle—but this is anything but normal. According to Rickards’ analysis, we’re due to enter the second recession within this prolonged depression, which he believes will start in early 2014.

“Deflation is the Fed’s worst nightmare,” he said. To maintain a semblance of control over the economy, Bernanke & Co. have to manipulate Americans into behaving in certain ways—by keeping real interest rates in negative territory, they encourage people to borrow, and they use inflation expectation shocks to encourage them to spend.

In the last installment of the game, Rickards said, the Fed will employ the “helicopter money” tactic, putting more money directly into the hands of the populace by persuading the US government to provide tax cuts.

How did he manage to accurately predict that there would be no easing of the easing this year? Simple: “The Fed said, ‘We taper if the economy grows according to our forecasts’—but their forecasts are always wrong.”

He said Bernanke is playing a very dangerous game: “The Fed thinks it’s playing with a thermostat, but in fact it’s playing with a nuclear reactor, and if they do something wrong, they’ll cause a meltdown.”

Energy’s Future: “People Will Have to Become More Pragmatic”

Aside from money, it’s indeed energy that makes the world go around—so the Energy Panel with Spencer Abraham, former US energy secretary, Lady Barbara Judge, chairman emeritus of the UK Atomic Energy Authority, Uranium Energy Corp. CEO Amir Adnani, and oil explorers Keith Hill of Africa Oil and Michael Greenwood of PRD Energy was one of the most raptly watched events of the Summit.

One of the topics was shale oil exploration and fracking, a topic that is becoming more and more critical for European countries striving to get out of Russia’s energy chokehold.

Michael Greenwood said that PRD Energy, which is currently test-drilling in an oil-rich area in Germany, is moving cautiously. Unions and environmental groups in many European countries vehemently oppose fossil fuel exploration and fracking, but he believes that sooner or later, those countries will have to deal with these important matters of national energy security.

(As an interesting aside, the documentary Gasland, which created a worldwide anti-fracking hysteria, was funded by Abu Dhabi and Russian state-owned oil and gas company Gazprom.)

Lady Barbara Judge also sees a future for nuclear power in Europe, despite the current  negative attitude, because “the CO2 story will make oil less and less attractive, and green energy doesn’t work.”

Africa Oil President and CEO Keith Hill agreed. Since the cheap, easy-to-extract oil is pretty much gone, he believes the oil price will go to $200 per barrel in the not-too-distant future. “Eventually oil is going to price itself out of the market. It’s still the best energy out there, but in the next 20 years, other forms of energy will become more and more important.”

“The Market Is Manipulated”

Andy Miller, partner and co-founder of the Miller Frishman Group, stepped up to the podium to give a much-needed update on real estate.

He believes that the housing market is headed into another recession. “I don’t see a recovery, I see a manipulated market,” he said, pointing out that the US home market also has an impact on consumer spending and employment.

More and more single-family homes are now owned by large hedge funds and other institutional investors, and the government is forcing them to fix up the homes and rent them out. “When you buy a single-family home, all you can hope for currently is a 3% yield,” said Miller. “So they’re in it for an appreciation play.”

It’s a dangerous game, though: “First-time homebuyers and individual investors are a fickle crowd; they get out of the market immediately when the numbers don’t work for them.” And the recent rate increases have already removed a lot of purchasing power from buyers.

Overall, the news from the housing market is not that good:

• New-home sales have fallen since 2008.
• 20-22% of Americans are underwater with their mortgage, but Miller believes that the real number of “zombie homeowners” who can’t sell or move may be around 40-45%.
• Car and truck sales are trending up—a bad omen, said Miller, because “no one goes out and buys both a house and a new car.”

His personal strategy: He circled 250 minor markets in the US and bought multi-family homes in resource-rich, booming regions.

How important are Fannie Mae and Freddie Mac for the mortgage market? “They dominate the market right now; if you turned it over to the private sector right now, it would be a calamity.”

Something Wicked This Way Comes

That something big—and potentially nasty—is coming is not hard to believe after listening to Dr. Elizabeth Lee Vliet and Marc Victor.

Dr. Vliet is an acclaimed expert on Obamacare, and has nothing good to say about it. The “Affordable Care Act” will indeed make health care more expensive, she said (Ron Paul quipped in his keynote speech that if you want to know what a government bill really does, just assume the opposite of its name).

How Useful Are You to Society?

But that’s not the worst of it: Americans will actually lose their choice of treatment. Government-appointed panels will decide what kinds of treatment are appropriate for you, and if Dr. Ezekiel Emanuel (brother of Rahm Emanuel) has his way, many surgeries and other treatments will be “attenuated” (i.e., rationed) for those over 45. That means expensive procedures like hip replacement or triple bypass probably won’t be approved.

“No problem,” you say, “I’ll pay for it myself, then.”

But no, you may not even get surgery if you’re loaded. According to Dr. Vliet, “hold harmless” clauses in many health insurance contracts prevent doctors and hospitals from providing care that government or insurance reviewers have deemed medically unnecessary. Most patients have no clue these provisions exist. So you have two options: suffer in silence (and die quietly, if you please), or become a medical tourist.

We’re moving toward a single-payer system, as in the UK, said Dr. Vliet. “In the UK, if you suffer from macular degeneration, you have to go blind in one eye before you can get surgery to save your remaining eye.” Prostate cancer, which is very treatable when taken care of early, has a +90% survival rate in the US—in the UK, with 18- to 24-month waiting lists, it’s only 53%.

“Never Mind the Ticket—Just Try Not to Get Yourself Killed.”

But it’s not just our health care needs that will be completely run by the government, said Arizona criminal-defense attorney and liberty advocate Marc Victor: the police state is already upon us.

He’s not one to mince his words: “If you believe that the Constitution is protecting you, let me tell you: the Constitution isn’t protecting you from anything. It’s merely words on paper; any creative lawyer can interpret them any way he wants.”

If you have a car, they own you, he says. For example, if you get in a traffic stop with drug-sniffing dogs, there are two signs that the dog “alerts”:

1. The dog changes its respiratory pattern
2. The dog changes its posture.

In other words, “if the dog ‘alerts’ for any reason, or the dog’s handler says it does, they’re going to rip your car apart.”

On a regular basis, Victor holds classes on what to do when you get pulled over in a traffic stop. “Most of my advice is about how not to get yourself killed, never mind the ticket. Don’t try to get out of a ticket; just pay it and keep your mouth shut – you don’t know who you’re messing with.”

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Why Don Coxe Expects Gold to Soar on Good Economic News

By The Gold Report

The standard wisdom on gold is that it does well in times of economic bad news such as in the 1970s, a period of stagflation and recessions, when the yellow metal rose from $35/oz to peak at $850/oz in 1980. But this time, Don Coxe, a portfolio adviser to BMO Asset Management, believes, things are different. In this interview with The Gold Report, Coxe explains why gold will rise when the economy improves.

The Gold Report: Are the days of easy money drawing to a close?

Don Coxe: I don’t think so. Even if the Federal Reserve begins to taper quantitative easing, the front of the curve is going to stay at zero interest rates. A trillion dollars is going through the Fed’s balance sheet, which works its way through the system. As long as the Fed keeps interest rates at zero, it’s easy money.

TGR: Will overt monetary inflation return any time soon?

DC: It will return when we have sustained economic growth. The Eurozone has been the big drag. It is definitely stronger than it was a year ago. The Eurozone has lots of problems, but it is experiencing economic growth despite the European Central Bank reducing its balance sheet in the last 12 months by almost exactly the same percentage amount that the Fed increased its balance sheet. This says that it has lots of firepower if it needs it. In addition, the Eurozone government deficits are lower than ours in terms of percentage of GDP. The Eurozone actually, despite all its highly publicized problems, has improved its financial shape relative to ours.

Also, in the last 12 months, Japan, the world’s third-biggest economy, has gone from negative growth to strongly positive growth. It is doing that by printing yen at a prodigious rate. The days of easy money are going strong.

TGR: If inflation returns, will it first appear in goods or services?

DC: In goods. If I had to pick the one point at which we’ll start to see the change, it’s when the razor-thin inventory-to-sales ratio comes under strain. Corporations are controlled by people who learned in business school over the last 20 years that the first thing to manage is inventories. This way they don’t have to worry about prices going up and don’t use corporate cash to finance an inventory that may decline in value. Therefore, when things change, it will show up in the pressure that comes because companies have so little inventory on hand. Corporations will decide that they’ve got to invest in more inventory because they’ve got more demand.

TGR: Do you think that will shake loose the vast amount of capital that’s being retained by the multinationals?

DC: It will shake loose some of it, but the big thing is it will come because prices are starting to rise. The two reinforce each other.

TGR: What do increases in monetary inflation and capital growth mean for gold?

DC: Gold rose along with the Fed balance sheet for years. The two have decoupled in the last two years. I believe the reason is people have just thrown in the towel that there will ever be inflation. If you’re “Waiting for Godot,” at some point you can reach the conclusion that Godot may never come.

TGR: Should investors bet on gold’s return to previous highs or something in that direction?

DC: I don’t think we’re going to see anything like the double-digit inflation that we saw back in the 1970s. The big difference was the tremendous power of unions then. They all had cost of living adjustments in their contracts; the Consumer Price Index (CPI) would rise in a quarter, then automatically wage rates would increase, and the two fed off each other. The weakened power of unions today has meant that we don’t have an automatic reinforcement right at the core of the system.

TGR: Let’s talk about monopolies and competition and why does the focus of big investors shift from growth to income?

DC: I’m not convinced that we’ve got a lot of monopolies out there. OPEC is no longer able to control oil prices, for example, because its share is no longer large enough to give it freedom on pricing. I believe that oil fracking will gradually start spreading from the US to other parts of the world. We don’t have that monopoly, which was the big one back in the 1970s that made it possible for OPEC to quadruple the price of oil. A quadrupling of the price of oil here is impossible because the global economy would collapse with a doubling of oil prices.

TGR: Are companies borrowing money at cheap rates to increase dividends and buy back stock? And, if so, how does that affect the system?

DC: Yes, companies are basically removing from the system what I believe is the core of capitalism, that corporate cash is used to grow a business. Investors pay a high price-earnings ratio for companies because they believe the companies can reinvest that cash and sustain their growth. When we see that corporate cash is being used to buy back stock and pay dividends, the decision-making force in the system becomes stockholders redeploying cash. In the past it was the corporations themselves through their retained earnings and effective reinvestment that drove the system.

If money that people got in dividends was invested in shares of companies that were issuing new stock in order to grow their business, then the whole system would not be losing the money. When you have a system where corporate treasurers do not assume strong future growth and they assume that these zero interest rates are going to continue for a long time, the incentive to retain earnings and plan on capital expenditures (capex) goes away.

Capex is putting money out at great cost, where companies get no immediate returns from it, whether it’s building a new building or opening up a whole area of the country. When you take that out of the system, the result is that you turn the system on its head. It used to be that the companies would, when they had the cash, decide how much was needed for capex; after that they figured out how much they would payout in dividends. The decision makers within the companies are no longer focused on creating overall economic growth through capex and expanding production.

TGR: Are we in a triple-dip or a quadruple-dip recession here?

DC: No, I think we’re coming out of it, but we’ve come out of it at a gigantic cost. The Fed had to quadruple its balance sheet, which raises all sorts of problems. We have no precedent in history of this kind of expansion of the Fed’s balance sheet.

The ratio of paper wealth to GDP is so high at a time when it’s going to be difficult for corporations to expand because, as I said, they will need a large amount of capex to meet rising demand at a time when there’s all that money out there. I would regard that as a virtual guarantee that at some point we’re going to see inflation.

This time inflation won’t come from rising wages. It will come from rising demand and the inability of corporations to swiftly respond to that demand. The technology industry can expand in a hurry because it keeps coming out with new products, but for most of the rest of the economy, it takes a while to build a plant and get the machinery ready and test it out before there actually is any production. That period of time, if you’ve got strong demand because there’s so much paper money, is the moment at which you will see inflation coming.

TGR: How will that affect gold?

DC: It will deal with the problem of faith in gold. When gold tracked the growth in the monetary base, which it did so well, there was a general conviction based on Milton Friedman’s theories that expanding the monetary base too fast eventually translates into inflation. Inflation is harder to stop than it is to just watch start growing.

We will see that interest rates will have to rise because of another group that has not been heard from in a long time: bond vigilantes. They are threatened with extinction. It will be a combination of rising interest rates and rising prices that will get people to say, “Ah ha! Milton Friedman was right after all—if you print the money, eventually you’re going to have the inflation.”

TGR: When you talk about bond vigilantes, are you talking about junk bonds or what’s known as private equity?

DC: The bond vigilantes work primarily on government bonds because they are the ones they can trade most effectively. Junk bonds are a small part of the market. With inflation the bond vigilantes sell off their 30- and 10-year bonds and move down to the 2-year note. At that point the cost of capital for expansion rises through the system because corporations can use short-term cash for some of their work, but they tend to use long-term borrowing from banks and the bond market for major projects. The cost of building those projects increases because of the steep yield curve.

TGR: Do you consider yourself to be a bear or a bull on gold?

DC: I am neutral in the short term. I’m not a bear. I’m a bull in the long term because I believe it’s not a question of if but when all this money printing eventually comes to haunt us. Gold as an asset class is so tiny in relation to the vast expansion of money around the world. With the printing that’s gone on, China has had to expand its renminbi supplies to prevent the currency from soaring relative to the dollar.

TGR: You are appearing at the upcoming Casey Fall Summit. Are you going to talk about gold there and will it be more or less what you just said?

DC: Yes. I am going to point out that the big story for gold is up until now gold has been only a bad news story. The reason why it’s in trouble right now is there always seems to be bad news in terms of inflation. People say if inflation hasn’t come now with the quadrupling of the Fed’s balance sheet, it’s never going to come, and the Fed is going to have to keep on pouring out more money because the economy isn’t growing.

When the economy starts to grow all of a sudden because, as I said earlier, of the inventory cycle, we are going to start to see inflation. Gold will become a good news story in the sense it will be responding to strong economic news at a time of massive liquidity, which translates into inflation. The fact that we’ve had all that money printing, which has only prevented us from going down into a pit, at such time as this actually leads to good economic growth. That is the point at which we’re going to see people wanting to have gold. It’s because we didn’t get the direct pass over of the money printing into rising prices that gave people a loss of faith saying, “Well, if it hasn’t come with quadrupling the Fed’s balance sheet, it’s never going to come.”

TGR: Given that, is it a good idea for investors to buy gold stocks while they’re available at basement prices?

DC: I believe that everybody should have gold insurance now. The question varies from investor to investor. What we have is an extremely high-risk central bank policy in the world, and it’s high risk based on monetarism. I believe monetarism will prove to be right because all past experiments with paper money eventually led to inflation and monetary collapse. At some point the fear of that will come. You need gold for insurance, but this time the payoff will come when the economy improves; in the past when everything was falling all around you, commodity prices were soaring out of sight. We had three recessions in the 1970s and gold went from $35 an ounce to $850. But this time, gold is going to appreciate when we start getting 3% GDP growth.

TGR: Thank you for your insights.

Don Coxe has 40 years of institutional investment experience in Canada and the US. As a strategist and investor, he has been engaged at the senior level in global capital markets through every recession and boom since the onset of stagflation in 1972. He has worked on the buy side and the sell side in many capacities and has managed both bond and equity portfolios and served as CEO, CIO, and research director. From his office in Chicago, Coxe heads up the Global Commodity Strategy investment management team, a collaboration of Coxe Advisors and BMO Global Asset Management. He is advisor to the Coxe Commodity Strategy Fund and the Coxe Global Agribusiness Income Fund in Canada, and to the Virtus Global Commodities Stock Fund in the US. Coxe has consistently been named as a top portfolio strategist by Brendan Wood International; in 2011, he was awarded a lifetime achievement award and was ranked number one in the 2007, 2008, and 2009 surveys.

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The Only Legal Way to Escape US Taxes Besides Death and Renunciation

By Nick Giambruno, Editor, International Man

When I hear about strategies that purport to legally allow US citizens to avoid having to pay income taxes, the first thing that usually comes to mind is that it is some sort of dodgy cockamamie scheme.

This is because the US government is no slouch when it comes to shaking down its citizens for every penny it can get away with. The mind-boggling spending on welfare and warfare policies necessitates this. It would be dangerously foolish in the extreme to think you could slip one past them.

There really was no sure way to legally escape the suffocating grip of US taxes besides death and renouncing your US citizenship… until recently.

Every other country in the world (besides the US and Eritrea) practices a system of residence-based taxation. This means that citizens are not liable for paying income taxes to their home country if they become a legal resident of another country and earn their income there.

Take, for example, an American expat and a Canadian expat who both live and earn income in Singapore. The Canadian would only be responsible for paying the much lower Singapore income taxes, while the American would be responsible for paying Singapore income taxes AND American income taxes (though the IRS does allow for around $100k of foreign earned income to be excluded from income taxes if certain conditions are met).

This is because the US taxes its citizens by virtue of their citizenship (citizenship-based taxation), regardless of where they live and earn their money. Even leaving the US permanently does not absolve you from paying US income taxes. Though Eritrea also practices citizenship-based taxation, it is an impoverished African country and has no ability to effectively enforce it. That’s the key difference. The US government can effectively enforce its citizenship-based taxation policies thanks to its massive economic, political, and military weight and the fact that it does not recognize any limit to its jurisdiction (consider FATCA and Edward Snowden).

American expats are therefore in the uniquely unfavorable position of having arguably the worst tax policies and a government that can effectively enforce them. For many, it is a tight and suffocating tax leash. It is no wonder, then, that a record number of Americans gave up their citizenship last quarter to escape these onerous requirements. (You can find more about citizenship-based taxation versus residence-based taxation in this article.)

There is, however, another way besides death and renunciation to legally escape US income taxes, thanks to the Caribbean island of Puerto Rico.

Puerto Rico is an unincorporated territory (commonwealth) of the US, and this allows it to have a special tax arrangement. Namely, legal residents of Puerto Rico who earn their income in Puerto Rico do not pay US federal income taxes (though they still have to file a federal tax return).

All Puerto Ricans are already US citizens, and since it is a commonwealth of the US, Americans are generally free to stay on the island without restriction and do not even need a passport to travel there.

In order to obtain legal residency status in Puerto Rico and the associated tax benefits, one would have to be physically present on the island for at least 183 days a year.

While US citizens who become legal Puerto Rican residents do not have to pay US federal income taxes on income earned on the island, they still have to pay local Puerto Rican taxes. This only amounts to 4% in certain cases, a pittance in comparison to combined US federal, state, and sometimes city income taxes.

This low 4% rate only applies if the services are performed in Puerto Rico for clients outside of Puerto Rico—otherwise a local income tax of as much as 33% is applicable. For example, an investment manager based in Puerto Rico who performs services for US-based clients would be eligible for the lower income tax rate. Consult a tax expert to discuss individual cases and circumstances.

In addition, Puerto Rico recently slashed its taxes on dividends and interest to ZERO, and capital gains taxes to as low as zero (maximum of 10%).This is part of a recent program over the past year or so in which Puerto Rico has been promoting itself as a tax-friendly jurisdiction open to Americans, in order to compete with its better-known Caribbean neighbors like the Cayman Islands.

Taken together, Puerto Rico is an attractive destination for American companies and individuals who have portable incomes, such as software developers, writers, Internet businesses, and especially those dealing with investments, like hedge funds, in which the majority of the earnings are derived from investment income like dividends, interest, or capital gains.

Spending half the year in Puerto Rico, with its beautiful white sand beaches, Caribbean climate, and close proximity to the US is not a bad proposition.

In short, thanks to a system of citizenship-based taxation, becoming a legal resident of Puerto Rico is the only way for Americans to keep their US citizenship and legally avoid US federal income taxes.

There have been at least 40 Americans who have taken advantage of this special arrangement with Puerto Rico and moved there during the past year. Earlier this year billionaire hedge fund manager John Paulson was said to have been exploring this option. Check out the short clip below from Bloomberg about an American who has moved to Puerto Rico for exactly these reasons.

Of course, the US government could always pressure Puerto Rico to change its policies, but people in the know view that as unlikely.

For now, Puerto Rico and its special tax situation definitely deserve consideration for Americans.

Puerto Rico may be the best internationalization option for Americans at present, but its conditions may be unworkable for many. Fortunately, many other options exist for internationalizing at least part of your wealth—and your life, should you want to leave your home country and live elsewhere. And honestly, with the global economy in the state it’s in, just about everyone would benefit from internationalizing… it isn’t just for Americans.

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Syria and Second Passports

By Nick Giambruno, Editor, International Man

All of us by now have seen the latest sales pitch from the Obama administration for yet another so-called “humanitarian intervention” in the Middle East. It is not hard to see that the case for war is a bunch of rubbish and will likely end in disaster for both Syria and the US.

I am not diminishing the tragedy that is going on in Syria. The events there touch me on a personal level. I have good friends who live in Damascus and have been there myself several times when the situation wasn’t so hot.

As some of you may know, I used to live in neighboring Beirut while I was cutting my teeth in finance at a regional investment bank. Due to its rich history and importance today, I have long been interested in the Middle East and sought ways to combine it with my professional background in finance.

I know it may be hard to fathom given what is put forth 24/7 on the mainstream media and if you have never been there, but Damascus is actually an amazing city on many levels—that is when it is not an active warzone of course. It is arguably the oldest continuously inhabited city in the world. The Christian quarter of the old city is one of the most enchanting places I have ever visited. And it’s tough to beat the pistachio encrusted sweets from the legendary 100+ year old Bakdash ice cream parlor in the souk el Hamidiyeh.

Anyway, my purpose today is not give travel tips or to debunk the case for US intervention in Syria as hokum—David Galland did an excellent job of doing that in his latest piece here.

Instead I want to talk about Syria in terms of the lessons it provides us in internationalization.

It is human nature for people all around the world to have the “that can’t happen here” mentality. And prior to the deterioration of the situation, many Syrians believed the same.

As Doug Casey has eloquently stated “The problem—your problem—is that any country can turn into a 1970s Rhodesia. Or a Russia in the ’20s, Germany in the ’30s, China in the ’40s, Cuba in the ’50s, the Congo in the ’60s, Vietnam in the ’70s, Afghanistan in the ’80s, Bosnia in the ’90s. These are just examples off the top of my head. Only a fool tries to survive by acting like a vegetable, staying rooted to one place, when the political and economic climate changes for the worse.”

The uncomfortable truth is that, as history shows, no country is immune—especially one that has a deteriorating fiscal health—and internationalization is the ultimate insurance policy.

You won’t be any worse off by moving some of your savings into multiple friendly jurisdictions and into things that are hard to confiscate, such as physical precious metals and foreign real estate. Obtaining a second passport is also an important ingredient in the mix.

Once you have taken these steps you will have insulated yourself and your family to a high degree from the uncertainty and sovereign risk emanating from your home country.

Developing your internationalization game plan takes time, and you must take action before it is too late. For Syrians, it would obviously have been optimal to have developed internationalization options many years ago.

Having a second passport and a financial account abroad denominated in a currency other than the Syrian pound, which has suffered from hyperinflation, would have gone a long way for the average Syrian today. The Syrian passport is not a great travel document; it requires a visa for most countries outside of the Middle East.

Having a second passport ensures that you will always have another place to potentially call home, another place where you will always have the legal right to live and work. In worst case scenarios, a second passport guarantees that once you get out of dodge, you won’t have to live like a refugee.

A second passport can also come in handy when a government decides to starting treating its own citizens as beef cows instead of milking cows (i.e. when they need more soldiers for war) or if passport restrictions and other types of people controls are implemented.

The Syrian government, for example, previously refused to renew the passports of Syrians abroad it suspected of being associated with the opposition. This is not surprising and should have been completely predictable—any government could and would behave in a similar manner. Any government has the ability to revoke the citizenship and/or passport of its citizens at a moment’s notice under any pretext that it finds convenient. Look at how the US cancelled Edward Snowden’s passport by fiat.

It is not inconceivable that the US government would, for example, make it more difficult for Ron Paul supporters to travel internationally one day in the future. Heck, they have already taken the first step and labeled them potential domestic terrorists.

The bottom line is that if you hold political views that the establishment of your home government does not like, don’t be surprised when they decide to restrict your travel options. In this case, having the political diversification that comes from having a second passport is even more important.

Unfortunately, getting a second passport, while necessary, is not easy. There are no solutions that are at the same time cheap, easy, fast, and legitimate. There is a lot of misinformation and bad advice out there regarding black and grey market passports that could likely end up causing you significant problems. It is essential to have a trusted resource to guide you through the process. There are definitely some options that are better than others. You can find our top picks for the best countries to obtain a second passport in and how to do it in Going Global 2013, a comprehensive guide to internationalization from Casey Research.

By Marin Katusa, Casey Research

The energy market is a complex beast, its many parts interconnected through a multitude of linkages. When one part fails, the entire system reacts: certain linkages are burdened with extra stress, while other components sit idle. Only by studying the entire machine can one understand the rippling effects that stem from one change.

With the energy market, the system is made up of various sectors – oil, natural gas, uranium, coal, and alternative energies – and the countries that have each of those energy resources. The components are then linked through a long line of forces, including the geographic distributions of supply and demand, international allegiances and trade deals, global markets and commodity prices, and the ever-evolving field of international relations. A change in any country, sector, or linkage resonates through the entire system.

From this perspective, North America’s shale gas revolution truly earns its accolade as a “game changer.” As many people now understand, the boom in natural gas reserves and production in the United States and Canada is changing the way North America will power itself in the future.

What a lot of people do not understand is how to profit from this shift.

Natural gas prices are depressed and expected to remain so for the short to medium term, so investing in natural gas options or a natural gas exchange-traded fund is not likely to bring home the big bucks anytime soon. Domestic natural gas equities are an even riskier idea – most producers are scaling back production and selling assets as they hunker down in preparation for a tough few years.

In this case, the way to profit is by understanding how natural gas’ changing role is impacting North America’s energy machine as a whole. Cheap natural gas is prompting utilities to switch from coal to gas where possible. The confluence of cheap natural gas and a risky global economy has droves of investors turning their backs on green energy, the sector that was such a market darling only a few years ago. Farther down the road, North Americans are debating – and in places implementing – a range of strategies to take advantage of the continent’s newfound abundance of natural gas, from natural-gas-powered transport trucks to exportation of liquefied natural gas (LNG).

Isaac Newton showed us that for every action there is an equal and opposite reaction. That is why every downside force in the energy sector creates upside opportunities elsewhere. The challenge is finding them. It takes an understanding of the entire global energy machine to figure out what areas are benefitting from the changing landscape.

For Every Down, There’s an Up

Natural gas seems to know that it is heading for several years in the doldrums and, in fighting spirit, it is trying to take a couple of other energy sectors down with it.

With coal, it is succeeding, but there are still lots of coal opportunities outside of the United States. With uranium, the global supply-demand scenario and America’s position within it is in such flux right now that cheap natural gas is doing little to reduce America’s need for U₃O₈. Then there’s the well-field services sector, where the successes born from horizontal drilling and fracturing created the gas supply glut that is forcing production cuts. Far from slowing down, however, well-field service companies are busier than ever as the oil industry adopts fracking to access shale oil, and the deepwater Gulf of Mexico continues to test the limits of drilling technology.

Coal

The sector feeling the worst impact from gas’ downturn is thermal coal. Demand for the coal burned to generate power in the US is plummeting as utilities take advantage of the cheapest natural gas in ten years. Consumption of coal to produce electricity is expected to fall 2% this year to its lowest level since 1992, while gas-fired consumption rises 5.6%. Making matters worse, winter heating demand is falling in the face of mild weather: through January, this has been the warmest winter since 2006 and the fourth-warmest on record. With natural gas and warm weather conspiring against it, coal demand is decidedly down – in the second week of February, coal consumption was 4.3% lower than it was a year ago.

Exports are not going to provide any help. Last year, Europe bought 50% of America’s thermal coal exports, but demand from the EU is shrinking as the region struggles to stave off a recession. The economies of the EU shrank 0.3% in the fourth quarter of 2011 compared to the previous quarter, the first contraction since mid-2009.

In response, US thermal coal prices are deteriorating. Appalachian coal, the US thermal-coal benchmark, fell 15% in January alone to sit near US$60 per tonne and has moved little since (by comparison, Australian thermal coal is currently fetching almost US$120 per tonne). Mining costs to dig thermal coal out of the ground range from $60 to $75 per tonne for Central Appalachian producers, which means margins are already razor thin or nonexistent. Several major US thermal coal producers are reducing output and in some cases closing mines, including Arch Coal (NYSE.ACI), Patriot Coal (NYSE.PCX), and Alpha Natural Resources (NYSE.ANR).

Now for some good news. Thermal coal prices in the United States may be faltering, but that doesn’t mean that coal is in the doldrums across the globe. In fact, quite the contrary: global thermal-coal demand is expected to increase by 50% from 2008 to 2035, with the vast majority of increased demand coming from the developing world. That equates to a demand increase of 1.5% each year, and production is not quite expected to keep up to that pace. Rising demand plus not-quite-enough supply equals investment opportunities – maybe not in the US, but elsewhere.

That’s just thermal coal. There’s another component to the coal world: metallurgical coal, the higher-carbon coal used to make steel. Supplies are even tighter with metallurgical coal, which is why Casey Research recommends that energy investors have exposure to “met coal” through either equities or a fund.

Uranium

The abundance of cheap gas has utilities looking to build more gas-fired power plants. Some observers have suggested that this will be to the detriment of the nuclear sector in the US. But that perspective is pretty shortsighted.

It is true that some utilities have delayed plans for new nuclear plants by a few years, primarily in response to the Fukushima nuclear disaster in Japan and the ensuing public backlash against uranium. But that backlash is already fading; and those delays will have only a minimal impact on the nuclear sector in the US. Five new generators are on track for completion this decade, including two reactors approved just a few weeks ago (the first new reactor approvals in the US in over 30 years). Those will add to the 104 reactors that are already in operation around the country and already produce 20% of the nation’s power.

Those reactors will eat up 19,724 tonnes of U₃O₈ this year, which represents 29% of global uranium demand. If that seems like a large amount, it is! The US produces more nuclear power than any other country on earth, which means it consumes more uranium that any other nation. However, decades of declining domestic production have left the US producing only 4% of the world’s uranium.

With so little homegrown uranium, the United States has to import more than 80% of the uranium it needs to fuel its reactors. Thankfully, for 18 years a deal with Russia has filled that gap. The “Megatons to Megawatts” agreement, whereby Russia downblends highly enriched uranium from nuclear warheads to create reactor fuel, has provided the US with a steady, inexpensive source of uranium since 1993. The problem is that the program is coming to an end next year.

At present the world is producing just enough uranium to meet global demand, but this precarious balance is already tipping. There are dozens of new reactors under construction in China, India, South Korea, and Russia that will need fuel. Production increases from new mines and mine expansions are not expected to keep pace. The race to secure uranium resources is on, and for the first time the US has to compete.

The answer is domestic production. The rocks underneath the United States hold lots of uranium, enough to make a significant contribution to the country’s uranium needs. The biggest impediment to mining this resource is public opposition to the nebulous dangers of uranium mining, but as the Megatons program ends Americans will start to see that the alternatives to domestic production are decidedly worse: competing against China, India, and the like for uranium is an expensive and unstable way to acquire a desperately needed energy resource. In fact, at Casey Research we have been vocal in predicting a demand-driven boom in US uranium production. We even expect to see “Made in America” uranium garnering a premium over imported yellowcake, in the same way that in-demand Brent crude oil earns a premium above oversupplied West Texas Intermediate crude.

Well-Field Services

The techniques used to unlock natural gas from shale reservoirs – horizontal drilling and well fracturing – worked so well that they created a supply glut that is altering the global energy scene. That supply glut is now prompting natural gas producers to cut back on output, which you might think would be bad news for the well-field service companies that complete those tasks.

Not to worry: North America is also in the midst of a crude-oil production boom, and the common theme linking most of the continent’s new wells is highly technical drilling and production methods. The purveyors of those techniques are the continent’s well-field service companies, and their services are very much in demand.

Well-field service companies have been able to compensate for lost gas fracking business by shifting to oil, as the oil industry has adopted fracking to unlock its shale deposits. If you’ve read about the oil production boom that is keeping North Dakota’s economy hopping, you read about the Bakken shale formation. In the Bakken, wells are drilled horizontally to follow along the oil-bearing layer, and then high-pressure fluids are forced down the well to fracture the shale and release the oil.

Meanwhile, the challenges of producing oil in the deepwater Gulf of Mexico continue to test the limits of drilling technology. Pushing through kilometers of water before drilling through just as much rock and then extracting and transporting oil from a platform rocked by waves and threatened by hurricanes demands a wealth of specialized equipment and operators.

Most oil and gas companies do not own drill rigs, nor do they actually drill or fracture their own wells. They contract those jobs out to companies that drill and frac for a living, known as well-field service companies. And with wells in America’s booming oil and gas fields requiring more complicated and more technical services with each passing year, the services these companies provide are essential to North America’s oil and gas producers.

The Take-Home

When a machine is as interconnected as the global energy trade, no part can change without impacting the rest. The dramatic debut of shale gas in North America has done far more than just depress domestic natural-gas prices – a shift of this magnitude has impacts that reach far beyond one commodity or one country. Some of those impacts are negative, but hidden in the doom and gloom lie opportunities to profit. The key is to open your horizons and embrace the complexity and interconnectedness of the global energy machine… either that, or find a good mechanic who can do the job for you.

[For more information on how to profit in energy this year, download and read this free report: The 2012 Energy Forecast.]

By Marin Katusa, Chief Energy Investment Strategist, Casey Research

The energy market is a complex beast, its many parts interconnected through a multitude of linkages. When one part fails, the entire system reacts: certain linkages are burdened with extra stress, while other components sit idle. Only by studying the entire machine can one understand the rippling effects that stem from one change.

With the energy market, the system is made up of various sectors – oil, natural gas, uranium, coal, and alternative energies – and the countries that have each of those energy resources. The components are then linked through a long line of forces, including the geographic distributions of supply and demand, international allegiances and trade deals, global markets and commodity prices, and the ever-evolving field of international relations. A change in any country, sector, or linkage resonates through the entire system.

From this perspective, North America’s shale gas revolution truly earns its accolade as a “game changer.” As many people now understand, the boom in natural gas reserves and production in the United States and Canada is changing the way North America will power itself in the future.

What a lot of people do not understand is how to profit from this shift.

Natural gas prices are depressed and expected to remain so for the short to medium term, so investing in natural gas options or a natural gas exchange-traded fund is not likely to bring home the big bucks anytime soon. Domestic natural gas equities are an even riskier idea – most producers are scaling back production and selling assets as they hunker down in preparation for a tough few years.

In this case, the way to profit is by understanding how natural gas’ changing role is impacting North America’s energy machine as a whole. Cheap natural gas is prompting utilities to switch from coal to gas where possible. The confluence of cheap natural gas and a risky global economy has droves of investors turning their backs on green energy, the sector that was such a market darling only a few years ago. Farther down the road, North Americans are debating – and in places implementing – a range of strategies to take advantage of the continent’s newfound abundance of natural gas, from natural-gas-powered transport trucks to exportation of liquefied natural gas (LNG).

Isaac Newton showed us that for every action there is an equal and opposite reaction. That is why every downside force in the energy sector creates upside opportunities elsewhere. The challenge is finding them. It takes an understanding of the entire global energy machine to figure out what areas are benefitting from the changing landscape.

For Every Down, There’s an Up

Natural gas seems to know that it is heading for several years in the doldrums and, in fighting spirit, it is trying to take a couple of other energy sectors down with it.

With coal, it is succeeding, but there are still lots of coal opportunities outside of the United States. With uranium, the global supply-demand scenario and America’s position within it is in such flux right now that cheap natural gas is doing little to reduce America’s need for U₃O₈. Then there’s the well-field services sector, where the successes born from horizontal drilling and fracturing created the gas supply glut that is forcing production cuts. Far from slowing down, however, well-field service companies are busier than ever as the oil industry adopts fracking to access shale oil, and the deepwater Gulf of Mexico continues to test the limits of drilling technology.

Coal

The sector feeling the worst impacts from gas’ downturn is thermal coal. Demand for the coal burned to generate power in the US is plummeting as utilities take advantage of the cheapest natural gas in ten years. Consumption of coal to produce electricity is expected to fall 2% this year to its lowest level since 1992, while gas-fired consumption rises 5.6%. Making matters worse, winter heating demand is falling in the face of mild weather: through January, this has been the warmest winter since 2006 and the fourth-warmest on record. With natural gas and warm weather conspiring against it, coal demand is decidedly down – in the second week of February, coal consumption was 4.3% lower than it was a year ago.

Exports are not going to provide any help. Last year, Europe bought 50% of America’s thermal coal exports, but demand from the EU is shrinking as the region struggles to stave off a recession. The economies of the EU shrank 0.3% in the fourth quarter of 2011 compared to the previous quarter, the first contraction since mid-2009.

In response, US thermal coal prices are deteriorating. Appalachian coal, the US thermal-coal benchmark, fell 15% in January alone to sit near US$60 per tonne and has moved little since (by comparison, Australian thermal coal is currently fetching almost US$120 per tonne). Mining costs to dig thermal coal out of the ground range from $60 to $75 per tonne for Central Appalachian producers, which means margins are already razor thin or nonexistent. Several major US thermal coal producers are reducing output and in some cases closing mines, including Arch Coal (NYSE.ACI), Patriot Coal (NYSE.PCX), and Alpha Natural Resources (NYSE.ANR).

Now for some good news. Thermal coal prices in the United States may be faltering, but that doesn’t mean that coal is in the doldrums across the globe. In fact, quite the contrary: global thermal-coal demand is expected to increase by 50% from 2008 to 2035, with the vast majority of increased demand coming from the developing world. That equates to a demand increase of 1.5% each year, and production is not quite expected to keep up to that pace. Rising demand plus not-quite-enough supply equals investment opportunities – maybe not in the US, but elsewhere.

That’s just thermal coal. There’s another component to the coal world: metallurgical coal, the higher-carbon coal used to make steel. Supplies are even tighter with metallurgical coal, which is why our subscribers have exposure to “met coal” through either equities or a fund. More recommendations are on the horizon: the upcoming edition of the Casey Energy Report will be all about coal. We will provide the background, supply and demand projections, and the best ways to profit from the global coal sector.

Uranium

The abundance of cheap gas has utilities looking to build more gas-fired power plants. Some observers have suggested that this will be to the detriment of the nuclear sector in the US. But that perspective is pretty shortsighted.

It is true that some utilities have delayed plans for new nuclear plants by a few years, primarily in response to the Fukushima nuclear disaster in Japan and the ensuing public backlash against uranium. But that backlash is already fading; and those delays will have only a minimal impact on the nuclear sector in the US. Five new generators are on track for completion this decade, including two reactors approved just a few weeks ago (the first new reactor approvals in the US in over 30 years). Those will add to the 104 reactors that are already in operation around the country and already produce 20% of the nation’s power.

Those reactors will eat up 19,724 tonnes of U₃O₈ this year, which represents 29% of global uranium demand. If that seems like a large amount, it is! The US produces more nuclear power than any other country on earth, which means it consumes more uranium that any other nation. However, decades of declining domestic production have left the US producing only 4% of the world’s uranium.

With so little homegrown uranium, the United States has to import more than 80% of the uranium it needs to fuel its reactors. Thankfully, for 18 years a deal with Russia has filled that gap. The “Megatons to Megawatts” agreement, whereby Russia downblends highly enriched uranium from nuclear warheads to create reactor fuel, has provided the US with a steady, inexpensive source of uranium since 1993. The problem is that the program is coming to an end next year.

At present the world is producing just enough uranium to meet global demand, but this precarious balance is already tipping. There are dozens of new reactors under construction in China, India, South Korea, and Russia that will need fuel. Production increases from new mines and mine expansions are not expected to keep pace. The race to secure uranium resources is on, and for the first time the US has to compete.

The answer is domestic production. The rocks underneath the United States hold lots of uranium, enough to make a significant contribution to the country’s uranium needs. The biggest impediment to mining this resource is public opposition to the nebulous dangers of uranium mining, but as the Megatons program ends Americans will start to see that the alternatives to domestic production are decidedly worse: competing against China, India, and the like for uranium is an expensive and unstable way to acquire a desperately needed energy resource. In fact, we have been vocal in predicting a demand-driven boom in US uranium production. We even expect to see “Made in America” uranium garnering a premium over imported yellowcake, in the same way that in-demand Brent crude oil earns a premium above oversupplied West Texas Intermediate crude.

We have already recommended a range of investments to our subscribers to gain exposure to the coming uranium resurgence and, as with coal, there is more to come: the next edition of the Casey Energy Opportunities newsletter will focus on uranium, with recommendations to boot.

Well-Field Services

The techniques used to unlock natural gas from shale reservoirs – horizontal drilling and well fracturing – worked so well that they created a supply glut that is altering the global energy scene. That supply glut is now prompting natural gas producers to cut back on output, which you might think would be bad news for the well-field service companies that complete those tasks.

Not to worry: North America is also in the midst of a crude-oil production boom, and the common theme linking most of the continent’s new wells is highly technical drilling and production methods. The purveyors of those techniques are the continent’s well-field service companies, and their services are very much in demand.

Well-field service companies have been able to compensate for lost gas fracking business by shifting to oil, as the oil industry has adopted fracking to unlock its shale deposits. If you’ve read about the oil production boom that is keeping North Dakota’s economy hopping, you read about the Bakken shale formation. In the Bakken, wells are drilled horizontally to follow along the oil-bearing layer, and then high-pressure fluids are forced down the well to fracture the shale and release the oil.

Meanwhile, the challenges of producing oil in the deepwater Gulf of Mexico continue to test the limits of drilling technology. Pushing through kilometers of water before drilling through just as much rock and then extracting and transporting oil from a platform rocked by waves and threatened by hurricanes demands a wealth of specialized equipment and operators.

Most oil and gas companies do not own drill rigs, nor do they actually drill or fracture their own wells. They contract those jobs out to companies that drill and frac for a living, known as well-field service companies. And with wells in America’s booming oil and gas fields requiring more complicated and more technical services with each passing year, the services these companies provide are essential to North America’s oil and gas producers.

The Casey energy team is all over the well-field services sector. Subscribers to the Casey Energy Report newsletter and the Casey Energy Confidential alert service were alerted to our latest recommendation in the sector in mid-November. Three months later, our investment is already up roughly 50% and we suggested that subscribers take a “Casey Free Ride,” which means selling enough shares to recoup one’s initial investment and retaining the remaining “free” shares for continued, risk-free upside exposure.

The Take-Home

When a machine is as interconnected as the global energy trade, no part can change without impacting the rest. The dramatic debut of shale gas in North America has done far more than just depress domestic natural-gas prices – a shift of this magnitude has impacts that reach far beyond one commodity or one country. Some of those impacts are negative, but hidden in the doom and gloom lie opportunities to profit. The key is to open your horizons and embrace the complexity and interconnectedness of the global energy machine… either that, or find a good mechanic who can do the job for you.

[One of the best opportunities we’ve seen in years involves leveraging a touchy situation that OPEC doesn’t want you to know about. Learn more about it.]