Even Polish Leader Piling on UK for Wreckless Spending

Donald Tusk, Prime Minister of the historical bastion of economic and personal freedom in Europe - Poland - told Gordon Brown that he can't spend his way out of the UK's economic downturn.

"All I can say is that the Polish government, at a time of financial crisis, behaved with full responsibility in terms of public funds and the level of budgetary deficit," said Tusk.  "The assumption that we adopted as the method to fight against the financial crisis is not to multiply expenditures but rather to increase responsibility for public funds," he said.

What a novel assumption Tusk makes - one that could only come from a country that was mired in communism for much of the 20th century.  And so one of the largest trends in economics continues - that of communist or formerly communist nations teaching Anglo Saxon countries how capitalism actually works. 

Tusk is not alone in laying the smackdown on Gordon Brown - if you haven't seen it already, check out this video of Conservative Brit Daniel Hannan laying the smack down on Brown.

Enjoy reading articles about Gordon Brown's economic incompetence?  Here are a few more gems for you:

• Is Brown the Ultimate Contrarian Signal for Gold?
• Brown Tosses Final Nail in Coffin of UK Economy

Gordon Brown Tosses Final Nail in Coffin of UK Economy

Gordon Brown appears to now have fulfilled his destiny as one of the worst leaders in the UK's illustrious history, as he tossed the final nail in the coffin of a wheezing economy, courtesy of a budget that would make one of Ayn Rand's villains blush.

Brown, like most politicians, appears to have read few if any history books, as he plans to tax top wage earners at 50%.  Those who believe that budgets can be balanced by soaking the rich are naive - capital, like water, flows downhill, according to the path of least resistance.  The exodus of capital from the UK will only accelerate as a result of these socialist taxation rates, and the UK will continue it's slide into oblivion.

Don't laugh too hard, fellow Americans, we're not far behind.

To top it off, the UK's budget plan is based on projections that have no chance in hell of coming true - calling for economic growth of 1.25% in 2010 and 3.5% in 2011.  I'll parlay the under on those two picks, thank you very much.

One guy entitled to say "told ya so" is Daniel Hannan, the Brit who layed the smack down on Brown in Parliament a few months back.  Classic clip.

Other lowlights of Brown's career, now that we're piling on?  How about his massive sale of 60% of Britain's gold between 1999 and 2002, essentially calling the absolute 20-year bottom for gold!  Earning him the hilarious nickname from the Casey Research folks "Goldfinger Brown."

Brown's party is almost a shoe-in to get voted out of office next year.  In the meantime, we'll leave with this parting shot - the collapse of the British Pound under his watch.  Gordon, we hardly knew ye.  Please remember to write us often.

Is Gordon Brown the Ultimate Contrarian Signal for Gold?

In this article, the editors of Casey Research's Big Gold publication analyze the dubious trading history of Gordon Brown when it comes to gold.

Goldfinger Brown Rides Again
By the editors of BIG GOLD

All the hot air emanating from the participants of the just concluded G20 Summit in London has, with the help of the breathless press, made its way into our neighborhood and lifted the Gordon Brown Alert wind sock atop the Casey Research headquarters.

A little background: Gordon Brown, Britain’s prime minister, became infamous for his, let’s say, slightly off judgment when he was still serving as chancellor of the Exchequer. Between 1999 and 2002, Brown managed to sell 400 tons or 60% of the country’s gold at the very bottom of gold’s 20-year bear market. The average price per ounce achieved at the 17 gold auctions was $275 – costing British taxpayers around $2.96 billion. This stroke of genius earned the chancellor such sterling titles as “Sold The Gold Brown” and “Bottom Brown,” among others that don’t meet our PG rating for publishing.

Incidentally, 2002 was also the breakout year for gold and the beginning of our current bull market for the metal.

A similar event in the bluster-sphere had the Alert sock flopping around again in early 2005. In February of that year, Brown was making the rounds on the press release circuit calling for a “revaluation” of the IMF’s gold ¬¬– that’s code for “sell the barbarous relic.”

Gold was selling for around $415/oz at the time – and within months, the second leg of gold’s bull run began. On May 11, 2006, gold peaked at an intraday high of $725 and remained in the $600 to $700 range for over a year in a consolidation that led to another sharp advance.

In January 2007, the IMF’s gold was again in the spotlight. A committee was formed to advise the IMF Executive Board how to solve the organization’s funding needs, and selling some of the IMF’s gold was part of the committee’s recommendations.

And we had something to say about it.

The following is from an article titled “About Those Proposed IMF Gold Sales” by BIG GOLD editor Doug Hornig, with an introductory comment by Casey Research Chairman Doug Casey:

As you have probably heard by now, a blue-ribbon panel recently advised the IMF to sell gold as a way of trying to clean up its finances.

The news initially spooked some weaker holders and hedge fund managers, most of whom are clueless about the overarching trends driving gold. However, as Doug Hornig makes clear in the following report, the proposed IMF sales represent much ado about nothing… other than perhaps creating a buying opportunity, that is.

Doug Casey

Doug Hornig concluded his article with:

Even if a sale does come about, will it matter?

Many feel that the IMF’s actions are not liable to have much impact on gold, arguing that the distortions of the CBGA, even at maximum 500-ton strength, have already been fully factored into the current price and its trend line.

This is not to say that there couldn’t be a short-term downdraught. Sure there could be, especially as the IMF sales are formally announced. Some holders of gold, maybe a significant number, can be expected to sell into the news.

But with countries such as China, Russia and the nations of the Middle East itching to add to their reserves, even a large dump of physical metal onto the market is certain to be absorbed in short order.

Nor will countries be the only buyers. Beverly Hills investments manager Kenneth Gerbino wrote in 2005 about a similar IMF sales speculation, saying that any additional supply “would surely be snapped up by the bullion banks and mining companies that are ‘short’ somewhere between 10,000 and 12,000 tonnes, according to some very savvy analysts.” There’s no reason to think that’s changed much in the interim.

Gerbino could have been writing about the IMF when he concluded, “Central bankers will most likely continue, as usual, to scare the price of gold down from time to time by statements of gold sales. But they are all too keenly aware of the growing number of people who realize that the gold, not paper and ink, is the real stable monetary element.”

Finally, it is important to keep the relatively miniscule amount of gold sales we are talking about in perspective. In an era where over $1 trillion in derivatives trade globally each day, $6.6 billion in sales is just not that much money when compared to potential investor demand once the U.S. dollar goes into the free fall that Doug Casey, among others, now believe is imminent.

In other words, if IMF sales do happen, and if they depress gold’s price, that’s a buying opportunity… for bullion and especially for the high-quality junior exploration stocks that pack the most punch in a rising gold market.

This insight is as valid today as it was in 2007, to which we’ll add that gold embarked on its third major up-leg of this bull market the following August, exploding from $650 to $1,000 in just seven months.

Fast forward to April 2009, and Goldfinger Brown is at it again, campaigning for IMF gold sales. What does it mean? Will he prove once again to be a contrarian indicator? We don’t know. But it doesn’t take a two-by-four to get our attention. In the meantime, we’ll keep an eye on the old Alert sock.

***

We at Casey Research don’t try to “time” the market, but we do pay close attention to any factors that could sway it one way or the other. Whether Brown’s antics indicate the next leg up in the gold bull market or not, gold is bound to go higher during the global economic meltdown. At this point, we recommend having 33% of your portfolio in physical gold... and crisis-proof, gold-related investments that can get you up to 4 times the return of the metal itself. Click here to learn more.

Deep Recession or Greater Depression?

Are we in a deep cyclical downturn, or the first few innings of The Greater Depression?

This is the question many investors are trying to answer, because this is what it all gets down to.  If we are "merely" in a deep recession - likely the longest and deepest since the 1930's - then we should expect things will go from bad to less bad in the not so distant future.  

This is key, because this is how you can make a lot of money investing - putting money in when things look really bad, but about to go to "not quite so bad."  You can find some great values, and your downside is limited.  

Problem is, this is the playbook everyone knows and is waiting for.  This is why the stock market typically starts to turn up around the middle of a recession - the stock market, being a forward looking vehicle, is able to detect when things are bleakest and about to become less bleak, and the ascent begins.  By the time sunny skies have reappeared, most of the easy money has been made.

So here we are - the end of March 2009.  We've been in a recession since December 2007.  The stock market began rallying a couple of weeks ago, despite economic news that still looks as bleak as ever.  So is this time to start buying undervalued blue chip stocks, following the play book that has worked so well over the past 25 years of buying good, quality stocks on dips?

I don't think so - because, I believe (and this is just my personal belief) that we are in a depression, not a recession.

IF the government has done nothing since the start of this financial crisis in the summer of 2007, and IF bad banks and bad companies had been allowed to fail, then I think we would indeed be on our way out of this mess right now.  Sure the last 18 months would have been very painful, but we would have taken our medicine, cleaned out the system and excesses, and have transferred assets from the incompetent people to the competent people.

Instead, the market has not been allowed to reset itself.  The incompetent people have been bailed out time and time again, and the competent people have not been able to pick up market share due to one government intervention after another.

So we find ourselves digging deeper and deeper into this hole, with the Federal government determined to "do something" to help the situation.  We are repeating the mistakes of the Great Depression, of Japan in the 1990's, and we are going to have financial hell to pay for it.

Despite the fact that no country has ever devalued it's way to prosperity, the UK, Japan, Switzerland, and now the US are in a race to devalue their respective own currencies as fast as possible to juice their economies.

US Adjusted Monetary Base is skyrocketing (Source: St Louis Fed)

Meanwhile, US government spending is balooning as well.  (Hey why not print it and spend it).  Unfortunately there is no free lunch in life, and this is not really helpful for the economy, because the government does not actually produce anything of value.  

There are only two ways the government can raise money:

1. Tax the productive private sector
2. Print it

Right now, we're seeing a liberal applicaiton of both options.

The problem I have with this whole situation is that there doesn't appear to be a free market anymore.  It's more profitable for many businesses to angle for stimulus money than it is for them to build and sell something of value to the marketplace.  That's a problem!

Now recently I've attempted to step back and look at the situation with a level head.  Morality and economic beliefs aside, the tax burden and government size of the US has no doubt been trending up throughout the entire 20th century.  And during that century, the US managed to do well economically.  So are things really that different this time?  

Things looked pretty bleak in the 1970's - how many would have predicted, at that time, the 80's and 90's would be so prosperous?

It's an open question, and one that I think we investors must continue to mull.  Though things may look quite pessimistic now, there will eventually be another dawn, because we know one of the most dominant trends in the history of the world has been the ascent of humans.  

But we also know that no trend goes straight up, trees do not grow to the sky, and right now the world is in the midst of a correction.  It's imporant to remember that corrections can be quite long and nasty, and that markets can remain "irrational longer than you can remain solvent."

As long as we continue to follow the playbook of the 1930's, I think we must expect that we'll get similar results.  As Mark Twain once said, history may not repeat, but it most certainly rhymes.  The past 25 years were an anomaly, a Pax Romana of sorts, where the US and much of the world experienced relatively peaceful, uninterrupted economic growth and prosperity.

History shows, though, that the world is often in turmoil and upheaval, and it's prudent to at least stay mindful of the fact that good times may not return next month, next year, or even next decade necessarily.  

There are glimmers of hope and positive signs to be found, and I'll leave you with a must see video of Daniel Hannan laying the smack down on UK Prime Minister Gordon Brown.  It's enouraging to remember that as bad as things may look, not everyone is asleep at the wheel, and there will eventually be a day for us to dust off our investing playbooks from the 80's and 90's.  Just not yet, though.

Editor's Note: For a spirited debate on this topic, check out the comment stream on Seeking Alpha's publication of this Greater Depression piece.

Current Futures Positions

No trades this week.  Personally I'm dealing with some "traders remorse" on the Japanese Yen trade, as the spike proved to be temporary.  However with the Fed now officially printing dollars, I intend to stay clear of the Forex markets for the foreseeable future.

Date Position Qty Month/Yr Contract Entry Last Profit

02/27/09 Long 1 MAY 09 Sugar #11 13.79 12.65 ($1,276.80)

Net Profit/Loss On Open Positions ($1,276.80)

Current Account Value: $24,450.32

Cashed out: $20,000.00
Total value: $24,450.32
Weekly return: -3.4%
2009 YTD return: -51.9% (yikes)

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Conservative Brit Lays Smack Down on Gordon Brown in Parliament

Daniel Hannan, Conservative MEP for the South East of England, lays the smack down on Prime Minister Gordon Brown in his speech before the European Parliament.

Highly recommended - and wouldn't we love to see someone other than Ron Paul stand up and give a speech like this in our spineless Congress. Enjoy!