Oil’s Out – Find Out What’s In

By Marin Katusa, Chief Energy Strategist, Casey’s Energy Opportunities

The International Energy Association (IEA) has spoken. What the world needs now is a clean energy technology revolution.

June saw the 2010 launch of IEA’s biannual report, Energy Technology Perspectives. Speaking at the launch was Nobuo Tanaka, executive director for IEA. The Gulf oil spill, he said, could prove to be a tipping point in the world’s energy consumption habits. He added that the disaster serves as a tragic reminder that our current path is not sustainable.

As far as the IEA is concerned, this is probably a very important moment to start looking at alternative energy sources. If we, as a collective group of consumers, continue on the business-as-usual path, the scenario for 2050 is looking grim.

This baseline scenario sees carbon emissions rising by 130%, with power generation accounting for 44% of total global emissions in 2050. Oil demand will be up by 70% – that’s five times the oil production in Saudi Arabia today. I’ll leave you to imagine what this means from an energy security perspective.

The other scenario offered by the publication, known as BLUE Map, is the “target” scenario. It assumes that all carbon emissions will be reduced by 50% by 2050 and suggests the least costly way to get there. This 50% reduction, the IEA insists, is the absolute minimum, should we want to keep climate change within the more acceptable 2-3 degree change.

The main focus of this scenario is, of course, weaning the world off fossil fuels. Carbon intensity of energy use would have fallen by 64% by 2050. Demand for coal would drop by 36%, gas by 12%, and oil demand by 4%. Renewable energy would be providing a hefty 40% of primary energy supply and 48% of the electricity generated. As for cars, 80% will be electric, hybrid, or hydrogen-fueled.

And while the world is expected to reduce emissions by 50% by 2050 in the BLUE scenario, it is the OECD that will bear the real burden. Non-OECD countries can get away with just a 50% reduction; OECD countries are looking at cutting 70-80% of their 2007 emissions. This would mean that the electricity sector for these 32 countries would have be “almost completely decarbonized” by 2050.

A portfolio of technologies needed to achieve the carbon emissions under the BLUE Map scenario

So what needs to be done to make this work? Well, gird your loins – the “top priority” will be to increase energy efficiency, reduce energy consumption, and lower energy intensity.

But there’s also some exciting news. The revolution is already under way.

On a global scale, total investment into technology and its deployment between now and 2050 would be about US$45 trillion – 1.1% of average annual global GDP over the period. The good news is, that investment has already begun all around the world.

Even as China grudgingly accepts the mantle of the biggest energy consumer, investment dollars are being poured into renewable energy research. China has already surpassed the United States as the largest producer of clean energy, whether it be hydro, wind, solar, or nuclear.

Germany, Europe’s powerhouse, is lining up renewable energy to compete with nuclear. Currently getting 10% of its energy from renewable energy, Germany’s renewable numbers for 2020 are projected at 38.6% electricity, 15.5% heating and cooling, and 13.2% of the transport sector.

And in the United States, the Obama Administration has been pushing for, and encouraging, clean energy research and development since it came into power. On display are a variety of subsidies and loans guaranteed to tempt even the most conservative producer.

Whether it’s the 30% cash up-front that the government is willing to give renewable energy projects or the vast amounts of cash injections into various energy technologies programs, renewable energy is set to take off in America.

For those investment portfolios that have taken a hit from the BP and Enbridge oil disasters, the IEA report is only going to spur up greater interest in the renewables game. Knowing which companies are enjoying political favor from Washington to Berlin and are at the receiving end of substantial grants is a sure-fire way to repair the damage.

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Find out which renewable energy company – poised to take a moon shot – is Marin’s personal favorite right now. Read more here.

Time to Go Global

By Chris Wood, Editor, Casey Research

Here at Casey Research, we really don’t enjoy being a buzz-kill. It’s just that we think it’s more important for investors to be well informed about the reality in which we find ourselves today than it is to be happy-go-lucky all the time.

The good news is that when the stuff hits the fan, as it has for going on two years now, it opens up a number of unexpected opportunities for profit. Even in the hairiest situations, there are ways to protect yourself.

Having said that, let’s start with the bad news…

If you live in the U.S., your taxes are about to get much, much, higher. And I’m not talking about the Bush tax cuts set to expire at the end of this year. I’m talking about a structural deficiency in the tax base that will force the spendthrift federal government to demand much more from the productive members of society, no matter who’s in charge of Congress and the White House.

Here are the facts.

For a bit of a refresher and to update where we are, in the table above I broke down federal government receipts and outlays (revenue and expense) by month for fiscal year 2009 and year-to-date 2010.

As you can see in the table, we’re through three-fourths of fiscal year 2010 and the deficit is already over $1 trillion. At this point last year, the deficit was also just above $1 trillion. So you can bet we’re on track for a total deficit of between $1.4 and $1.5 trillion this year.

Just like last year, the huge deficit figure will be widely reported, even in the mainstream media. But a related piece of vital information will be glossed over (if reported at all).

This piece of information is the most crucial to why your taxes are set to skyrocket – and nobody is even bothering to mention it.

You see, the “outlays” column above comprises two types of spending: discretionary and mandatory. Mandatory spending, expenditures that must go into the U.S. budget, includes things like Social Security, Medicare, Medicaid, income security programs, and some others. And according to the Congressional Budget Office, mandatory spending reached $2.1 trillion in fiscal year 2009. What’s more, it increased more than 30% from the year before.

Now look back up at the table above. Notice anything?

Total receipts for 2009 were also $2.1 trillion. In 2009, for the first time ever, mandatory spending just about equaled total tax receipts.

That means that basically every single penny the federal government received in taxes last year (including individual income taxes, corporate income taxes, social insurance and retirement receipts, excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts) was already spent on something mandatory before it came in.

It’s also worth mentioning that while mandatory spending grew by 30% last year, tax receipts fell by 16%. So under the current tax structure, a gap will begin to grow where mandatory spending pulls away from total tax receipts.

What this all means is that your tax burden is sure to rise, significantly, over the coming years. That’s the government’s only choice at this point. You think it will cut discretionary expenses by any meaningful amount? Not hardly, it’s too politically damaging. And forget about legislation to cut mandatory spending until the system goes completely bust. In the meantime, both parties will try to kick the can further down the road by extracting as much as possible from you in taxes.

Now, here’s the good news…

Unlike the government, you do have a choice. You can “go global” and protect yourself by internationalizing your wealth through all the legal means available, making yourself a target that’s not easy to hit.

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For the past several months, we’ve had some of our best people working on a special report with the purpose of providing you everything you need to know to internationalize your assets and yourself. And it’s finally finished. You can read all the details here, incl. the 5 best ways of going global… at this point, this is not “Whenever you get around to it” advice anymore – the time to act is now, before new laws and regulations kick in that prevent you from getting your money out of the country.

Uncle Scam

by David Galland, Partner, Casey Research

The latest data on global gold trends, Q2 2010, just popped into my email box from the World Gold Council.

The bad news is that the higher nominal price of gold has caused a 5% decrease in jewelry sales over the prior year.

If you’re thinking “Hey, that’s not that bad!”, you’d be right. On this date last year, gold closed at $950… which is $286 below where it trades as I write. In other words, a 30% rise in price has resulted in a decrease of just 5% in jewelry sales.

And even that number is skewed, because the currency value of the gold purchased is up – way up. For example, India – the 800-pound gorilla in the global gold jewelry market – saw total gold jewelry sales fall only by 2%, but in local currency terms, there was a 20% increase in the nominal value of the gold trading hands. China, which only relatively recently reauthorized private gold purchases, saw a 5% increase in jewelry demand, but that translated into a 35% increase in local currency terms.

So, that’s the bad news.

The good news – at least for fiat money skeptics – is that total physical gold demand in Q2 rose by a whopping 36%. More tellingly, the increase was 77% when you take into account the dollar value of the ounces purchased.

As you’ve already figured out, the bulk of the physical demand is coming from investment – with the amount of gold held by ETFs growing 414% over the previous year.

Too far, too fast? I don’t think so.

In my opinion, as the fiat money monsters are brought to bay, the price of gold can really only go higher. Overly confident? I don’t think so.

That’s because when people lose faith in a currency, as they will before this crisis is over, they unfailingly rush to exchange the unbacked paper money for something more tangible. While pretty much anything with an intrinsic value will do – real estate, antique cars, old masters – for all the reasons that Aristotle enunciated, gold is viewed in a class of its own, and so has an unblemished history as a universally accepted store of value. And, thanks to its portability, divisibility, durability, and consistency, it has also always been looked upon as a convenient form of money.

The most pressing macro-observation I’d like to make – an observation that’s critical for investors to understand (though most don’t or won’t) – is that the tectonic monetary shift now underway is truly global in nature. And it’s not going to be over until a new and markedly different monetary regime has been implemented.

It’s like this: Throughout history governments have experimented with fiat money. They have done so because the benefits to the government and the insiders that invariably latch on to power are just so damn attractive. The Romans did it by debasing their coinage, but the modern version goes one better by completely disconnecting a currency from any value whatsoever, and then wantonly printing as politically motivated needs or wants arise.

The latest fiat system kicked off in earnest in 1944 when Uncle Scam, in Bretton Woods, NH, got the leaders of the world’s war-weary countries to agree to accept the U.S. dollar as their reserve currency. In return, the U.S. agreed that the currency notes it would subsequently issue would be convertible into a corresponding amount of gold. Then Tricky Nixon came along in 1971 and canceled the right of the bearer to swap the notes for gold. Overnight, the link between the currency and anything tangible was lost.

That, of course, opened the door to all subsequent politicians to engage in the whole print, print, print thing. The keystone asset of the former system – gold – soon became a distant memory for the new crop of central bankers and, remarkably, to the bearers of the notes.

For any number of reasons, most of which related to the illusion of increasing prosperity, people simply stopped paying attention to what Uncle Scam was up to. Of course, that illusion was largely based on the increase in nominal wealth: if one year you’re worth $100,000 and three years later you are worth $150,000, the tendency is to feel richer even if your actual purchasing power has gone up by far less or even has declined due to a debasement of the currency.

Today’s dollar is worth just 18 cents in 1971 terms.

But all scams must, in time, come to an end. And that’s what’s going on now. It ends here. Before this is over, the current iteration of the U.S. dollar – the vaporous construct with no actual value – will lose its value as money.

Which brings me to an important nuance in this discussion.

Most failed fiat money experiments involve a single currency. The most convenient recent example is provided by Mugabe’s Zimbabwe. Rather than actually supporting the creation of marketable goods and services in what he sees as his private fiefdom, he took the low road of energetically abusing his fiat currency to the vanishing point.

In a situation such as that, the local citizenry suffers – as well as anyone foolish enough to be holding bonds denominated in the debased currency. But that’s about it.

In the current scenario, the keystone of the entire global monetary system is the U.S. dollar. Which means that the primary reserve holdings of virtually all the world’s significant central banks are at risk of going up in smoke.

And it’s even worse than that, because the dollar is also the number one trade currency – which means corporations around the world are sitting on huge holdings or are dependent on commercial contracts denominated in dollars.

And even that’s not the end of it. Because Uncle Scam has long served as a role model to other world leaders, those leaders have enthusiastically followed suit and universally launched fiat monetary systems of their own. It’s bad enough that the world’s reserve currency is a fiction – but the situation becomes really dire when you accept as fact that all the world’s currencies are a fiction.

Man, we’re in a lot of trouble.

If you have so far resisted our constant urgings to make gold – which is to say, real money – a core portfolio holding, it’s not too late. Just start buying on the inevitable dips. I can assure you that as the fiat monetary structures continue to crumble – and they will – more and more people will be turning to gold. The latest World Gold Council data is just a straw in the wind.

In fact, thanks to the convenience of the gold ETFs (which you should make an effort to understand before blindly investing in them – there are important differences between them), once the show really gets underway, the relative trickle of investment funds moving into gold today will quickly become a torrent, completely outrunning available gold supplies and sending prices much, much higher – and in a hurry.

While no one can say when the big spike in gold will occur, one can say accurately that, given the systematic frailty, it could literally happen on any given day. That’s what happens when scams are unveiled. Remember Bernie Madoff? How many people do you think tried to give him money the day after he was arrested, versus desperately scrambled to get their money out of his sticky web? The answers are “No one” and “Everyone” – that’s what happens when people lose faith in a currency.

Of course, gold bullion, and gold bullion proxies, aren’t the only asset classes that will do well in the coming currency collapse. The chart below shows what looks to be a trend change in the gold stocks. In previous recent stock market corrections, people thought of gold stocks more in terms of being stocks and overlooked their direct connection to gold. That appears to be changing, with a divergence between gold stocks and the broader markets. The leverage in gold stocks to gold bullion could make them especially attractive.

Regardless of what you do, do something – because to stumble on as if this crisis will end with a whimper would be a dire mistake.

Gold and large-cap gold stocks can save your wealth when most other assets decline in value. Even in the Great Depression, investors who held both ended up with gains, while others lost everything they had. Read more about how gold and gold producers can shield you from the worst – click here.

Everyone Wants to buy at the bottom and sell at the top; but that just doesn’t happen. Buy gold now, after this huge run-up? Maybe you should.

Better late than never, right?

Sure, you don’t want to buy right before a pullback, but gold has been very resistant to pullbacks ever since the world figured out what fiat currencies are really worth since the financial crisis.

Even Gary D. Halbert, a normally level head, recently wrote that you want to limit your exposure to gold to a small percentage.

Sure, Gary, let’s limit our exposure to an asset class that has QUADRUPLED this past decade while almost everything else has TANKED!

Let’s take a peak at what Jeff Clark has to say about buying gold now versus waiting.

You’ll Buy Gold Now and Like It!

By Jeff Clark, Casey’s Gold & Resource ReportI get this question a lot: “Should I buy gold now, or wait for a pullback?”

It’s a valid question. For nearly two years, gold hasn’t had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold’s largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we’ve seen this summer is 8.2%. Technically the summer’s not over, but I’ll admit I’m surprised we haven’t had a better buying opportunity.

So, is now the time to buy? It depends on your honest answer to another question: “Do you own enough gold?” By “enough” I mean an amount that lends meaningful protection on your assets. By ”meaningful” I mean that no matter what happens next – another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending – you won’t worry about your investments.

Whether you should buy now is almost irrelevant if you don’t already own a meaningful amount of gold. If you earn $50,000 a year, how is one gold Eagle coin going to protect you if the dollar plummets and sends inflation soaring? If your investable assets total $100,000, is your nest egg sufficiently protected owning two gold Maple Leafs? This is all akin to buying a $50,000 insurance policy for a $500,000 home.

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will.

If you don’t have at least 10% of your investable assets in physical gold, or at least two months of living expenses, you have your answer: Buy. Don’t use leverage, don’t borrow money, and don’t buy with reckless abandon, but yes, get your asset insurance policy and tuck it away. And then start working toward 20% (we recommend a third of assets be in various forms of gold in Casey’s Gold & Resource Report).

Back to the original question: should we buy now, or wait for a pullback?

The answer comes when you look at the big picture. If you pull up a 9-year chart of gold, what sticks out is that the price is near its all-time nominal high. One could be forgiven for thinking it looks toppy or at least ripe for a pullback. But I assert that the highs for gold have yet to be charted.

What will a gold chart look like after adding five years to it?

When projecting gold’s potential price peak, there are many ways to measure it. Conservatively, gold reaching its inflation-adjusted 1980 high would have it topping around $2,400 an ounce. More radically, if the U.S. tried to cover its cumulative foreign trade deficit with its current gold holdings, gold would need to hit about $32,000/oz.

Let’s take something more middle of the road, and apply the same trough-to-peak percentage advance gold underwent in the 1970s. (I think there’s a greater than 50/50 chance it does more than that, given the precarious nature of the U.S. dollar.) Gold rose from $35 in 1970 to $850 in 1980, a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply that by 24.28 and you get a gold price of $6,214 per ounce.

Sound too high? Well, would it feel high if you had to pay $12.50 for a Big Mac? At $3.39 today at my local McDonald’s, that’s about what it would cost ten years from now if we get the same rate of inflation we had in the late 1970s.

So if gold hits $6,214, what might it look like on a chart if you bought today around $1,200?

$1,200 doesn’t seem so pricey, does it?

I’m not saying there won’t be pullbacks or that you shouldn’t try to buy at lower prices. Just keep a big-picture perspective. Let’s say gold falls to $1,100 and you’re kicking yourself for having bought at $1,200… if gold reaches $6,200 an ounce, the profit difference between buying at $1,200 and buying at $1,100 is only 1.6%. If gold gets whacked to $1,000 (at which point I’ll be buying with both hands) the difference is still only 3.2%.

Heck, even if gold peaks at $2,400, you still get a double from current levels. (But unless government monetary policies immediately reverse course, gold isn’t stopping at $2,400.)

So there’s my answer. Yes, you have to accept my projection of gold’s ultimate price plateau. And you have to sell at some point to realize the profit. But if the final chapter of this bull market looks anything like the chart above, I don’t think you’ll be too upset having bought at $1,200.

Carpe gold.
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As high as we think gold could go, it’s gold producers that will gain three and four times more, bringing us potentially life-changing profits. Check out the new issue of Casey’s Gold & Resource Report, where we’ve identified the easiest and cheapest way to buy gold stocks, even for smaller wallets. It’s only $39 per year – try it risk-free here.

Saskatchewan: A Gold Mine for Uranium

By Marin Katusa, Casey’s Energy Report

Mining is a risky business and accidents happen. But when your mine is the world’s largest uranium deposit, fourth largest copper deposit, and fifth largest gold deposit, an accident can cost a little bit more than the average. Something BHP Billiton found out after the shaft accident at its flagship Olympic Dam mine located 560 kilometers north of Adelaide, South Australia.

In October of last year, a breakdown of one of two haulage systems saw a loaded iron skip plummeting to the bottom of the 800-meter-deep main shaft. It caused enough damage to the inside of the shaft, and to the gears and the wheels that bring the ore to the surface, that it took nine months to repair.

So much does it actually cost when production is halted at a mine that’s clearly won the geological lottery?

BHP Billiton revealed on July 21 that annual copper production was down 11% in 2010, uranium production off by 43%, and gold production was 19% below the normal. The amount of material mined in fiscal 2010 was 5.3 million tonnes, down 9.8 million tonnes from last year.

The mine has, according to the company, returned to full production now. There is however, the small problem of contracts.
One of BHP’s largest clients is China, the country whose energy appetite just can’t get enough. The country that will be buying up to 5,000 metric tonnes of uranium this year.

The Olympic Dam mine produces 7% of the world’s uranium, production that was affected by the shutdown. While production is getting back on track today, the feeling in the BHP boardroom is one of unease.

The reason: the rise in the number of new nuclear power stations coming online in the next few years, along with all the contracts that need to be fulfilled. Expansion plans are in the works already. BHP is looking to massively increase the size of the mine and has handed in a 4,000-page environmental impact statement (EIS) draft to the Australian government.

The sticking point is, they’re going to have to go deeper, and it’s going to get a lot more expensive. The Australian government isn’t going to turn away from the opportunity to tax this goldmine either. And if the problems of additional cost aren’t enough, the rail system in Australia can’t handle moving that much ore at all times, so tack on some more delays.

Unsurprisingly, BHP is out scouting the market for some good deals on uranium. Top on their list is Saskatchewan, Canada.

Why Canada Is 45 Times Better Than the U.S.

The uranium deposits in Saskatchewan aren’t just significantly large; they’re also the highest-quality uranium known on the planet. The ore mined at MacArthur River has an average ore grade of 21% – average ore grades are given as a percentage of uranium oxide in the ore.

Just to compare, the uranium found in the U.S. is usually around 0.4 – 0.5%. That makes the Athabasca Basin uranium 45 times higher-grade.

The uranium deposit at MacArthur River can be visualized as a few school busses parked within a school football field. It might sound small, but in uranium-speak, that deposit’s big! It’s big because the grades are incredible in the Athabasca Basin. And that makes it huge financially.

Canada also ensures that the uranium it sells is used solely for electricity generation at nuclear power plants. The end use is very strictly enforced through an assortment of international non-proliferation treaties and Canadian export restrictions.
In fact, uranium on a per-tonne basis is worth more than gold if you’re in the Athabasca Basin. Given current uranium spot prices, it can fetch a staggering US$13,500 per tonne. That’s unheard of!

BHP Takes a Whole Building in Saskatoon

After meeting with many uranium executives, one can’t help but notice the large BHP building off 3rd Avenue while walking around Saskatoon. It’s not just the potash and diamonds that BHP cares about in Saskatchewan. The quantity of uranium underneath the Athabasca Basin is almost beyond reckoning. It can provide substantial wealth to the right company and the right investor.

If BHP decides to enter the uranium sector in Saskatchewan, which companies are on their short list?

That’s exactly what I was finding out while wandering the prairies.

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If you want to know which juniors are the most likely to be taken over by uranium-hungry BHP, you’ll find out soon in Casey’s Energy Report. After Marin has done his due diligence, he’ll emerge with a few hand-picked small-cap companies that show the greatest potential to provide investors with handsome returns. Take your 3-month risk-free trial now and get in early when Marin gives the starter shot. Learn more here.

The Best Gold Interview of 2010

Jeff Clark, Casey’s Gold & Resource Report

Much of what passes for “insider” information these days is often conspiracy-edged or largely conjecture. True inside information is actually hard to come by. So what follows is the refreshingly candid and uncut version of my talk with a first-hand participant in the murky and little-understood world of gold bullion, mints, and bullion dealers.

Customarily, when considering a company for a potential recommendation, I hold a series of discussions with management. It was during one of these vetting procedures that I spoke with Andy Schectman of Miles Franklin – and heard some disturbing reports about supply that every investor should know. Andy is a bullion seller, so you’re welcome to take his comments with a grain of salt. On the other hand, what he sees week after week and what he hears from his high-level industry contacts might just make you pull back on that salt shaker and re-inventory the number of ounces you own…

Jeff Clark: Andy, tell us about the kinds of contacts you have in the industry and where you get your information.

Andy: I’m associated with two of the six primary mint distributors in the United States. There are only six primary precious metal distributors here because the qualifications are very difficult to meet. Aside from having $100 million in annual sales, you have to extend a $50 million line of credit to the U.S. Mint, and very few companies can do that. So in working with these companies, I’m privy to information that many others aren’t.

Jeff: So, what have you been hearing from them about supply for physical gold and silver?

Andy: I think in order to properly characterize what’s happening in the industry, it’s important to start from a big-picture perspective, which is that by and large the masses in this country are not involved in precious metals. In my experience, the move we’ve seen in gold over the last decade has primarily been from international investment – sovereign wealth funds in the Orient, petrodollars in the Middle East, India buying from the IMF, Russia and Japan accumulating, etc.

Most U.S. investors have lived through nothing but prosperity and good times, where they perhaps didn’t think they needed to own gold – but I think the rest of the world isn’t as optimistic about the future. So when you talk about supply, it’s important to acknowledge that most people in this country don’t own any gold and silver. To me, that’s what should really alarm people.

Jeff:  Tell us how you would characterize supply right now.

Andy: Fragile. Availability of product changes almost weekly.

But it’s worse than that. When the market plunged 1,000 points in one day last month, two German banks bought about 35,000 or 40,000 one-ounce coins and cleaned out the Royal Canadian Mint overnight. Think about that: two banks cleaned out one of the world’s preeminent mints in one day.

Then you have the Austrian Mint recently announcing they were running into supply issues. And the U.S. Mint has been the model of inefficiency for the last several years. They have been either reluctant or unable to meet demand when it comes to Gold Buffalos, Platinum Eagles, and fractional Gold Eagles. They issue dribs and drabs of them, but certainly not enough to meet demand.

Jeff:  And they frequently run out.

Andy: They frequently run out, they frequently have delivery delays, and it’s a situation where very quickly we could see major disruption in the supply chain.

Jeff: We saw supply constraint in 2008, where dealers were running out of product. Do you think we’re headed there again?

Andy: I do. In 2008, when gold dropped from $1,000 to $700 very quickly, all product worldwide disappeared. Within weeks the U.S. Mint was shut down. The Canadian, Austrian, and Australian Mints were all eight to 12 weeks back-ordered or shut down. The Australian Mint stopped taking any new orders in July or August for the rest of the year. The Rand Mint, for the first time ever, sold out of all its product. One wealthy Swiss businessman flew his own 747 there and cleaned them out.

So product was impossible to get, but not just from the primary mints; even the refiners that made 100-ounce silver bars couldn’t get them. No one could get anything, and it was a very scary time if you owned a gold company. There were many days I sat at my desk wondering how I was going to get product tomorrow, and there were times we couldn’t take orders whatsoever. And that comes from a company that’s done over $100 million in sales, is a member of the certified exchange, and that has contacts that run very deep in the industry – and I couldn’t get anything.

A friend of mine who owns a very prominent gold and silver company in Colorado has a store front, and back then he told me, “I want to put a sign on my window that says, ‘All we do is buy, we don’t sell,’ because one person will come in there and clean me out and there’s nothing to be had.”

So what I think is ahead comes from that experience. If you factor in that very, very few people in this country have even held a gold coin – let alone own any gold, or understand the reasons to own it, or will even accept the arguments for owning it – I think the primary distinguishing characteristic of this market will be that people won’t be able to get product when they want it. The rising price in and of itself will not be the main hurdle. For the most part, people will overcome price, because they’ll want to own it. The real issue will be getting product in a timely fashion, and that will become difficult for the average American.

Jeff: What about supply from those selling coins and bars who bought at lower levels? Doesn’t that increase the available supply?

Andy: This is what I believe is a distinguishing feature of this market: there is a total absence of a secondary market. There isn’t one. Period. In years past, we used to do a lot of business with people wanting to sell. Today, virtually no one is selling their coins back to us. In fact, for every 100 transactions we have, maybe one is a seller – the other 99 are buyers. Our largest supplier, who provides over 60% of all bullion to the U.S. market, told me earlier this month they have days without one single buy back. And this is from the largest supplier in the U.S.

Jeff: Why do you think no one’s selling?

Andy: People are afraid. They’re afraid of what’s happening geopolitically, economically, fiscally, and want to hold on to their gold. As they should, because this is exactly the kind of circumstance gold is for.

So I would argue that as gold and silver creep higher, there will be more and more buying and less and less selling. And less selling means less product for buyers.

When you look at the fact that there is no secondary market, and then you throw into the mix that the mints are already running into production problems, and then add the troubles in Europe, which could easily spread, I think it’s easy to see how demand could outstrip supply. I assure you, there’s an awful lot of gold acquisition going on in other countries – the Swiss and Germans, for example, see the handwriting on the wall. They were buying everything up when the European crisis broke. It was bedlam for awhile.

And if all of a sudden people here wake up and feel they really need to own gold but can’t get it, we’ll be right back where we were in 2008.

But to your point, yes, nobody is selling anything right now and almost anything you buy will be dated 2010. That’s because there are no backdatedcoins to be had virtually anywhere. Maybe 20 here or 50 there, but nothing on a meaningful basis.

Jeff:  It sounds like regardless of what’s going on in America, global supply could be in jeopardy if this trend continues.

Andy: Absolutely, especially with the fact that there is no secondary market. Really, the people who enter the game late are going to be at the mercy of the mints. And if the mints run out of supply, or just stopped selling for whatever reason, it’s “game over” for those who want to accumulate. Right now there’s as good a supply as I’ve seen in a couple years, and that’s at a time when we’ve already witnessed the Royal Canadian Mint running out of gold for a week or so, the Austrian Mint also running out of product, and the U.S. Mint rationing Silver Eagles for a short time.

Jeff: And you’re calling this a good supply market?

Andy: Yes. It’s as good as we’ve seen in a couple years.

Jeff: That’s scary.

Andy: I don’t think you’re exaggerating by saying that. And the message is, “Buy now while it’s still available.” I know it may sound like I’m trying to sensationalize it, but I’m really not. Based on what I know, it’s my opinion that if 5% of this country put 5% of their money into gold, there would be nothing left tomorrow morning. Supply is that small compared to the tremendous amount of money that’s out there.

Here’s another example. I had a meeting with a money management company here in Minneapolis that manages some of the oldest money in the entire country, literally billions of dollars. And when I spoke with them, I discovered the principals of the firm had never held a gold coin. They asked me questions that were as rudimentary as what I would get from a complete novice. By the end of the conversation, they said they would start with a $5 million order. I later learned this was a small order for just one of their clients. It was just dipping a toe in the water for these people.

Well, it won’t take too many of these kinds of people waking up to gold to drain the supply chain. Most of the wealth in this country is driven through money managers, and at some point these people will tell their managers, “I don’t care what the price or premium is, get me gold.” When they come knocking in large numbers like that, the supply chain will dry up overnight. I know this to be true. If we see an event that drives money managers to buy physical gold, the supply will be gone.

Jeff: Some of that money is already going into the ETFs.

Andy: Yes, but not when you consider the total capital that’s available. And keep in mind that the prospectus for GLD and SLV state that, more or less, you can’t take possession of the metal. So, do you “own” gold if you have shares in GLD or SLV, or any ETF, for that matter? If you can’t put the coin or bar in the palm of your hand, the answer is no.

Jeff: Are you seeing any difference between gold and silver? Is one more difficult to come by than the other?

Andy: We’ve seen a lot of demand for silver, probably more so than gold, and the U.S. Mint has already rationed Silver Eagles once this year. Junk silver bags are becoming much harder to get. And I think the higher gold goes, the faster silver will disappear. At some point the American public will realize they should have some gold and silver, and we could see a situation where the gold price could get out of reach for some investors. Those people will turn to silver and, as a result, it will probably be tougher to get than gold.

Jeff: If supply gets scarce, do you expect premiums to shoot up?

Andy: Absolutely. In 2008 the premiums were astronomical. Silver Eagles were $5.50 to $6 over spot. Gold Eagles were $100 to $150 over spot. The premiums went parabolic. That could easily happen again.

Jeff: And that was due to constrained supply.

Andy: Yes. When the price fell off the table, everything disappeared quickly. That’s counterintuitive, I know, because logic would dictate that as the price of something falls, demand is waning. But as the price fell, I think it became more attractive to large interests around the world, and everything got gobbled up fast.

Looking ahead, I can tell you that the only way you’ll see premiums stay where they are is if the mints are able to keep up with demand, and based on what I see I would argue there is no way they can. They can’t even keep up now. On top of that, as I stated, people aren’t going to sell their gold this time unless they absolutely have to, so there won’t be any supply coming from sales.

Jeff: So your message to someone who owns little or no physical metal now is what?

Andy: Acquire as many gold and silver ounces as you can. In the end it’s not about price paid, it’s about number of ounces. View the supply issue as critically as you would the price, because I believe that more than anything else, the lack of available supply will mark this industry.

Jeff: Excellent advice, Andy. Thanks for your input.

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Florida – Much Worse Problems Than the Oil Spill

By Doug Hornig, Senior Editor, Casey Research

Media coverage of the oil spill’s effect on the Gulf focusing on tourist income lost by the waterfront towns – with footage of empty beaches, restaurants and T-shirt shops – dominates the news. Interviews with devastated business owners are heart rending. But they always end with references to somehow hanging on until “things get back to normal.”

Trouble is, things are not going to “normalize.” Not for the Panhandle of Florida, and probably not for the rest of the state, either.

Projections suggest that Florida can expect oil all along its west coast, and possibly throughout the Keys and up the east coast as well. Yet even before BP’s well began spewing crude, pressures within the state’s economy were building. It was an explosive situation awaiting a match.

Oily beaches and dying wildlife are likely that match.

Take unemployment. Statewide, it ballooned from 3% in 2006 to a peak of 12.3% in February 2010. Though it’s backed off, it remains in double-digit territory at 11.2%. ”Officially” – though official numbers understate the problem. Illegal immigrants, some 4.5% of Florida’s population, aren’t counted; the long-term unemployed and aging workers are regularly purged, even if they’re still looking for work.

This in a state already confronted with the worst of the coming healthcare/taxation crunch. It has the second oldest population in the nation, and as its citizens retire, their earnings fall off, causing tax revenues to drop. At the same time, healthcare bills rise, stressing social service budgets.

Florida is ground zero for Baby Boomer demographics. With 600 seniors for every 1,000 workers now, and the number trending inexorably higher, soon every employed person in the state will essentially have to adopt one senior to care for out of his or her paycheck.

Housing? Naturally, rising unemployment amplifies the difficulties of maintaining homeownership. With further negative effects from the oil, we can only expect the situation to worsen. A tsunami of defaults and foreclosures – and bank failures – would not be a surprise.

Florida is mortgaged to the hilt. It ranks second only to California in total securitized non-agency mortgage loans, 10% of the national total. Of those, half are 60 days or more delinquent, or 16% of all such mortgage delinquencies in the country, the highest ratio anywhere.

The state is full of retirees trying to live on modest incomes while hanging on to their homes. Unsurprisingly, this has led to a disproportionate amount of at-risk loans. 85% of the statewide pool is rated Alt-A or Subprime.

Nor has the crash in prices bypassed the Sunshine State. Nationally, fewer than 30% of houses sold for a loss in the past year, compared to nearly 50% in Miami and 65% in Orlando.

Many would-be sellers are clinging to the cliff edge by their fingernails. Overall, 81% of all Florida loans are under water, with the average mark-to-market loan-to-value ratio standing at 138%. Almost 40% of borrowers are crushed beneath debt of more than 150% of the value of their homes.

State government is no better off.

As the oil cuts into employment prospects, tax revenues will nosedive – and even before the blowout, the state was broke. The projected budget shortfall for fiscal year 2011 was $4.7 billion. What it will actually be is anyone’s guess – a bigger number is baked in the cake – but at $4.7 billion, it already represented more than 22% of the FY10 budget.

Both tax hikes and service cuts are political suicide. And desperately raising taxes in a depressed economy tends to decrease revenue, anyway. Yet a balanced budget is mandated by law. Where will the additional money and/or savings come from?

Then there’s Florida’s $113.8 billion public pension fund. It must generate earnings of 7.75% per year to meet its commitments to the nearly one million public employees and retirees who depend on it.

What investment safely yields 7.75% today? Nothing. So the fund’s administrators are asking for permission to try some “riskier” investments. Maybe they’ll succeed. Or maybe they’ll wind up staring down the barrel of a pensioners riot.

Florida’s coming problems are intractable, at best; the least bit of bad luck and they may become utterly irresolvable.

Expect bailouts. Washington will not be able to ignore what happens to this beleaguered state. The federal government will be forced to spend yet more vast sums of money that it doesn’t have, on a recovery that will take years, if it ever happens.

And that makes Florida’s plight a looming horror for us all.

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[Florida is just one small gear in the United States’ broken economic machinery. The Casey Report regularly analyzes where the economy is going and how savvy investors can protect themselves from the inevitable fallout. One of the editors’ favorite investments for 2010 (and beyond) is betting on rising interest rates – a true no-brainer. Read more here.]

Expatriate Your Wallet

By Terry Coxon, contributing author of Casey Research’s ‘Going Global’ Special Report

If everything you own is held in your own name in your own country, then you are not merely exposed, you are vulnerable absolutely, to whatever decisions the government might make about how you should behave and who gets the wealth you’ve earned.

Tomorrow’s new government measure, which might land out of the blue, could be a law that affects everyone, or it could be a rule devised to deal with people like you. Or, it could be an administrative action aimed at you alone. In any case, with all your assets at home, you’d find out how the lobster feels when his trap is being hauled out of the water. Nothing he can do about it.

The only way to protect yourself against the risk of being boiled in a government pot is to keep some of your assets in another country. Depending on how you go about it, the specific benefits you might achieve are:

• Protection from currency exchange controls
• Protection from the confiscation of precious metals
• A lower profile as a lawsuit target
• Income tax planning advantages
• Estate planning advantages
• Easier access to investments in other countries
• A measure of financial privacy
• Practical readiness to move additional assets quickly
• Psychological readiness to think and act internationally when you need to

There are many ways to go about getting those benefits. None is right for everyone, and they all come with some element of cost or inconvenience. Here’s the main menu.

Foreign Bank Account

Small bank account. A small account at a foreign bank gives you a ready and private landing spot if you ever decide you want to move a large amount of money in a hurry. If you’re a U.S. person, the account is non-reportable, so long as the balance (together with any other foreign financial accounts you own) never reaches $10,000.

Large bank account. A large account at a foreign bank also provides a landing spot for anything you want to send later. If foreign exchange controls are ever imposed, the new rules may require you to repatriate the money – or they may not. Depending on the specifics of the new rules, your account may be grandfathered. In that case, the overseas funds would enable you to travel outside your own country while others are forced to stay at home.

A foreign bank account also slows things down if you’re ever under attack. It’s safe from an instant seizure by functionaries of your own government or by the unassisted order of a court in your own country.

The disadvantage of a large bank account vs. a small bank account is the loss of privacy. If you’re a U.S. person, you are required to report your foreign financial accounts if their aggregate value reaches $10,000.

Gold and Swiss Annuities

Physical gold. Gold stored in a safe deposit box in a foreign bank is not a foreign financial account, nor is physical gold in segregated storage with a non-bank safe-keeping facility. So a U.S. person can store an unlimited amount of metal that way without triggering any reporting requirements. Avoiding a need for annual reporting is a plus, but don’t rely too heavily on the privacy you get with a safe deposit box, since the steps the gold takes to get there may create records of their own.

Foreign variable deferred annuity. As with an annuity issued by a U.S. insurance company, a variable annuity issued by a foreign company is tax-deferred for a U.S. investor until he withdraws the earnings. The annuity can be invested in major currencies or in portfolios of international stocks and bonds. If the annuity is big enough (a minimum of $1 million or more, depending on the insurance company), it can be invested in real estate, a private business, or just about anything else.

It’s only conjecture, but if foreign exchange controls are imposed, they are unlikely to disturb any foreign annuity that’s already in place, which is a big plus for an annuity vs. a foreign bank account.

A foreign variable deferred annuity isn’t private for a U.S. investor. When you buy one, you generally must file an excise tax return and pay a 1% tax, and you must report the annuity as a foreign financial account.

Swiss immediate lifetime annuity. A Swiss annuity that begins paying you an annual income when you buy it isn’t a foreign financial account, which may save you a reporting burden. And under a tax treaty with the U.S., Swiss annuities are exempt from the 1% excise tax. There’s nothing private about it, however, since part of each annual payment you receive will be taxable income.

You can make it difficult for a creditor (such as someone who won a lawsuit against you) to get his hands on a Swiss immediate lifetime annuity by electing not to have the option to cash it in. A forced assignment to a creditor generally would not be valid under Swiss law.

Offshore mutual funds. The array of mutual funds available internationally is even broader and more varied than what’s available in the U.S. And, like a foreign bank account, your share account with an offshore fund is safe from a lightning seizure by your own government. But for a U.S. investor, an investment in a foreign mutual fund comes with certain tax disadvantages. They are tolerable if you handle the investment properly or truly ugly if you don’t. And your shareholder account would be a foreign financial account and so would be reportable.

Offshore LLC. You can use a limited liability company formed outside your home country as an international holding company. It, not you personally, would buy and hold the overseas investments you want.

An offshore LLC can be designed to be very unfriendly to your potential future lawsuit creditors, even more so than an LLC formed in the U.S. An additional plus is that while many banks, mutual funds, insurance companies, and other financial institutions shun business from individual Americans, many of the shunners will welcome business from a non-U.S. LLC even if it is American-owned.

An offshore LLC owned by a single U.S. person (or by husband and wife) can elect to be treated as a disregarded entity for U.S. income tax purposes, which makes it absolutely income-tax neutral. Or it can elect to be treated as a partnership, which makes it almost income-tax neutral. The LLC also can be used for estate-planning in the same way as a U.S. LLC.

By the ratio of benefits to cost and complexity, an offshore LLC rates especially high. But it does not eliminate your reporting burden. If the LLC owns a large foreign bank account, you will be required to report it. And there will be annual reports for you to file about the LLC itself.

Foreign Real Estate

Foreign real estate. A direct investment in foreign real estate is free of any special U.S. tax or reporting rules. It’s just like buying a farm in Kansas. It would also present added difficulties for a lawsuit creditor looking for ways to collect. And it is unlikely that any regime of foreign exchange controls would touch existing foreign real estate investments.

Foreign real estate can also pay you a psychological dividend. Knowing you have a place to go to, should you ever want or need to go, provides a sense of security. That apartment in Buenos Aires or the acreage in New Zealand means you’ll never be a lobster.

Foreign real estate partnership. By investing in a private foreign partnership or LLC that owns foreign real estate, you can achieve all the advantages of a direct investment. In addition, you increase your protection against foreign exchange controls and lawsuit creditors because there is no ready resale market for your partnership interest.

International IRA. An IRA or a solo 401(k) is permitted to own anything other than life insurance and so-called “collectibles.” Anything.

Some IRAs and solo 401(k) plans own a domestic limited liability company and use it as a vehicle to buy and hold other investments. Such an LLC can own an offshore LLC that does the real investing. As with your direct ownership of an offshore LLC, this does nothing to reduce your reporting duties; in fact, it adds to them.

The advantage of such an arrangement is that it allows you to internationalize your retirement plan. Anything international you might do with your personal investments, you can do with your IRA’s investments. And it’s the ideal structure if you want to invest in offshore mutual funds. The IRA short-circuits the special tax rules that apply to investments in offshore funds, and the offshore LLC’s shareholder account application is likely to get a warmer reception from the fund than would your own American hand knocking on the door.

Private international investment contract. Depending on your circumstances, it may be possible to structure an investment contract between you and an international financial institution that is tax-deferred, non-reportable, and protected from future exchange controls or prohibitions on owning gold. This is custom work, so, of course, it’s only practical for large chunks of capital.

International asset protection trust. A properly structured international asset protection trust provides the maximum level of protection from anything that happens in your own country. It does so by leaving you with a measure of influence, but not control, over the trustee. The trustee is outside of your home country and thus is not subject to its laws. And you don’t possess the authority to compel the trustee to invest or distribute the trust fund in any particular way. Thus there is no direct means for your own government to impose any regime of exchange controls or investment restrictions on the trust fund.

An international asset protection trust is far and away the most powerful of all financial planning devices. Handled properly, it is virtually impenetrable to future creditors and is especially helpful in estate planning. It is also the most complex device and hence the one most likely to be handled ineptly. And of all the tools mentioned in this article, it comes with the heaviest reporting burden if it is funded by a U.S. person.

Of course, this is the briefest of overviews of a complex topic. For specific guidance on each of the menu items listed, and pros and cons related to your own circumstances, you’ll need to seek qualified counsel.

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With an ever-growing number of regulations and financial restrictions that gradually choke your ability to build and maintain wealth, protecting your assets by getting them out of the country should be a critical part of every investor’s strategy. We recommend you get started before it’s too late. Read more about the 5 best ways to internationalize your assets.