Saturday, March 28, 2009
Doug Casey is greatly underappreciated. He's been expecting the debacle we see unfolding today – a collapsing financial sector, government spending growing out of control, and a public backlash against capitalism – for as long as I've known him, almost 15 years.
He calls the scenario "The Greater Depression." And now, he thinks it's going to be even worse than he expected...
At his conference last weekend in Las Vegas, he told the audience what he's doing to protect himself from what he sees coming next: soaring inflation, capital controls around the world, and vast increases to America's already confiscatory tax regime. What is Doug doing? Well, he built a very private community in a very safe place about as far away from the centers of government power as you can get. His development is called Estancia Cafayate. It's located in the southern part of Salta province in northwest Argentina.
While you might think moving out of the United States is a dramatic overreaction to the current crisis, I think Doug is absolutely right about one thing: capital controls.
The last time America experienced a debt collapse on this scale (the Great Depression), the government seized all of the privately held gold in the country, then devalued the dollar by 60%. Most people have forgotten this lesson: When the government gets desperate, it will openly steal from its own citizens.
Back in the 1930s, currencies around the world were based on different weights of gold. Today, currencies aren't backed by gold, they're backed by U.S. dollars. As the Fed devalues these dollars, everyone is going to want out of the dollar. And our government will do everything it can to prevent anyone from selling the dollar...
That will mean rules against taking money out of the country. It will mean rules against buying gold, silver, or foreign currencies. And I can even tell you the exact day these controls will take effect: The day after the Treasury secretary promises America will never institute exchange controls. There's no liar in the world more full of crap than a Treasury secretary in the midst of a devaluation.
If you don't have a foreign bank account, I highly suggest you open one now, while you still can. At the very least, you ought to own gold, silver, and oil, either directly or via securities. (And currently oil seems cheaper than gold.)
One of the more interesting speakers at the conference was "Simon Black." He uses a pen name to protect his privacy. He is a graduate of West Point and was an intelligence officer in the Army during the Gulf War. He told us he decided to leave the Army and America when he saw Colin Powell use fraudulent intelligence at the U.N. to justify America's invasion of Iraq. Specifically, Black says Powell was using satellite imagery from 1991, claiming it was from 2003. And he says everyone senior to him in the Army knew the intelligence was false.
Black now lives in Panama and holds several passports. As he says, becoming an expatriate is "change you can believe in."
Another very interesting (and controversial) speaker was Robert Friedland...
There's probably nobody in the resource sector who is more polarizing than "Toxic Bob." Friedland is infamous for his ownership of Galactic Mining, which was found to be dumping cyanide into rivers surrounding its Summitville, Colorado, mine. The mine ended up as the largest Superfund cleanup in the U.S.
Friedland was in Vegas pitching his enormous gold and copper mine. Ivanhoe Mines holds what may be the largest gold and copper deposit ever discovered. The downside is, it's in central Mongolia. It will cost tens of billions of dollars to bring this resource to the market. I wouldn't bet against Friedland... but it was disappointing to hear him claim repeatedly that Ivanhoe has no debt. According to the Bloomberg, at the end of the third quarter last year, Ivanhoe had $339 million in long-term debt. Ivanhoe's total common equity is $439 million. So Ivanhoe is actually about 77% leveraged. That's a far cry from being "debt free." But... we've never seen Bob let facts get in the way of a good story.
What did I tell people at the conference? I pointed out SL Green (a New York commercial real estate firm) is very likely to go bankrupt.
My SL Green analysis is simple. As the company explains: "We may not be able to refinance existing indebtedness, which in all cases requires substantial principal payments at maturity. In 2009, approximately $200.0 million of corporate indebtedness, and $823.1 million of debt on our unconsolidated joint venture properties will mature."
Why won't SL Green be able to repay its debt? Because its three biggest tenants are all going broke. Citigroup, Viacom, and Credit Suisse collectively account for nearly 20% of SL Green's rent revenue.
I've spent the past 12 months investigating another potential bankruptcy that almost no one is paying attention to right now... More than 110,000 people across the U.S. stand to lose millions overnight – as early as April 30th. If you're early enough, you could make tens of thousands of dollars this year.
Date Range:3/19/2009 to 3/26/2009
Date Range:3/19/2009 to 3/26/2009