The Daily Reckoning February 4th


Revolving Zombies

The defining characteristic of a zombified system is the way it hands out its rewards. In an honest economy, people do their best. They work hard. They take their chances. Some prevail because they are productive. Others are just lucky. The chips fall where they may.

But as the system is taken over by zombies, the chips fall where they are told to fall. Rather than to honest and efficient producers, the rewards go to those who curry favors.


Elizabeth Fowler knows how it works. She labored at the left hand of senator Max Baucus, drafting the collection of crimes and punishments that came to be known as ‘Obamacare.’ Senator Baucus admitted that he had better things to do than actually read it. But he didn’t have to. His chief health policy counsel, the aforementioned Madam Fowler, knew what was in it. As a former top lobbyist for Wellpoint, America’s largest health insurance provider, she had made sure the chips went where she wanted.

“If you drew an organization chart of major players in the Senate health care negotiations,” wrote Politico at the time, “Fowler would be chief operating officer.”

Fowler had already been through the revolving door more than once or twice. She worked for Baucus before joining Wellpoint…and after. When she came back to Baucus she replaced Michelle Easton, another Wellpoint lobbyist, who helped guide the senator on health policy while Ms. Fowler was on the Wellpoint payroll.

Then, after the legislation was passed, the White House turned to the clever lobbyist to implement it. After all, the sugar spot in the legislation was the provision requiring people to buy products from companies such as Wellpoint, whether they wanted to or not. As America’s new Special Assistant to the President for Healthcare and Economic Policy at the National Economic Council, her job was to make sure Wellpoint got a good return on its investment.

And then, in December 2012, whoosh…she went back through the revolving door. Type in “Elizabeth Fowler” and “revolving door” and you will get the whole story. The ‘architect of Obamacare,’ say the papers, left the White House to go to the honeypot at Johnson & Johnson.

What will she do there? Will she test the adult diapers? Will she take out the trash or write advertising jingoes? No, she is up to her old tricks, in a ‘senior position’ at their ‘government affairs and policy group.’

You go girl!

(This is not the first time this sort of special privilege has been granted in the USA. The ethanol industry got it coming and going. Tax credits subsidized farmers for growing corn and then federal mandates required fuel companies to buy it. )

Wellpoint was not the only winner in the health care sector last year. The New York Times reports:

WASHINGTON — Just two weeks after pleading guilty in a major federal fraud case, Amgen, the world’s largest biotechnology firm, scored a largely unnoticed coup on Capitol Hill: Lawmakers inserted a paragraph into the “fiscal cliff” bill that did not mention the company by name but strongly favored one of its drugs.

The special favor was buried in Section 632. It involved a kidney dialysis drug — Sensipar — that was spared from cost-cutting restrictions for an additional two years. This was the fruit of efforts by 74 Amgen lobbyists. It is expected to cost the Medicare system up to $500 million.

That’s how a zombie system works. Congressional staff members slip favors to private sector companies. Then, the companies return the favors, giving staff members cushy jobs. One of the chief Amgen lobbyists, for example, had been an employee of Senator Max Baucus, head of the Senate Finance Committee. Jeff Forbes was the senator’s chief of staff. Amgen has given the politicians $5 million since 2007, with $68,000 to Baucus.

But poor Elekta AB. The Swedish maker of radiation tools got stabbed in the back by the same last-minute legislation. That’s the way zombieism works too; the rewards go to people who are best able to pervert the political process. Elekta was at a disadvantage. A foreign company, it couldn’t give money to the politicians. Varian, its competitor, could. Plus, Varian put 18 lobbyists on the case and managed to get Elekta’s payments cut in half.


More to come…


Bill Bonner
for The Daily Reckoning

Revolving Zombies appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

How Digits Are Reinventing the World Order

Most people today use technologies without a clue to the larger picture of what is really happening to the structure of the world because of them. People are staring at the trees and not noticing the gigantic, growing, and ever expanding forest, much less considering the meaning of it all.

This is an attempt to provide a larger look, starting with one of the most beautiful images on the entire Web. It comes from This site lights up a tiny pixel for every public communication sent through Twitter.

What you see serves as a proxy for the growth of global communication networks far more complex and voluminous than most people imagine. The reach extends far beyond that of any regime in the world. By comparison, the control that government has over the planet, as egregious and ghastly as it is, is miniscule.
This puts into perspective the $3 million that the Eurocrats are spending to skew upcoming elections in favor of centralized solutions and put down Euroskeptics. It cannot be done. Governments think they can control this, but they can’t.

Twitter was born in 2006, but its present form was built by users themselves. The developers made the infrastructure and let it happen. It is not only about just telling your friends what you had for lunch. It serves its users — each of whom has exactly as much power as any other — as a portal to the entire digital universe.

Tweets can be petty (“bathroom on the 2nd floor clogged: see this image”) to very serious (“army mobilized for killing in NE district: map”), from the tiniest network (a household) to the largest (a famous pop star or global corporation). Most importantly, they all overlap in ways that surpass human comprehension.

Communications are organized by users themselves. No two users have the same network, any more than any two people in real life have identical relationships with others. That’s why the complexity is essentially unfathomable. What’s more, it is scalable: It can grow and deepen and widen without a known limit. It has 500 million users (and growing) and sends some 340 million tweets daily (and growing). It handles 1.6 billion search queries per day.

When you load the site, it begins from zero and then begins to light up and fill in. Here is what you see after two hours:

The lighted portions show engaged, online, sophisticated, and prospering populations. Most all populated portions of the world are involved. A surprising world center comes from East Asia: Malaysia, Singapore, Indonesia, and Vietnam. But South America, Russia, the Middle East, and well-populated portions of Africa are all lit up. Again, this is just two hours of use.

What we see here is a new form of global order, one not organized by regimes, but by people. It is the closest existing picture of the capacity of people to organize their own lives in a setting that no regime has approved, much less implemented. It is undirected, undesigned, and far larger than the individual intentions of any single user or any institution. It is delightfully “out of control,” a picture of a beautiful anarchy.

Twitter Nation is only one piece of the overall digital puzzle, one sector of overlapping and cascading sources of communication and global exchange. If you can imagine the entire picture, what you see is precisely the world that states have worked for generations to prevent from emerging. They took over communications in the early part of the 20th century as a way of maintaining their status as gatekeepers. The people would know only what states would want them to know, and no more. That’s the purpose of the censors, the controls, the official organs of opinion, the propaganda.

That’s all over. It’s a major defeat for the coercive model of social and economic organization.

Now consider another chart: the use of Bitcoin in transactions. Bitcoin is a digital currency created by someone whose identity remains unknown. It became public only in 2009. Today, it is the most widely used alternative currency. It works without central banks, governments, or even user identities.

As with all technology, it is used at the margins of society before it becomes mainstream. Watch what the “weirdos” and “wackos” are saying and doing and you see the future.

In the last few years, it has gained notoriety for becoming the black-market currency of choice. But I knew something had changed when a good friend of mine who works for a very mainstream news source in New York tossed me an instant message: “I’m now a proud Bitcoin owner! These are so cool!!” This was about the time that WordPress started accepting them and reports began to abound about all the mainstream things you can buy with them.

At this site, you can watch a live record of new transactions, which occur about one per second from around the world, depending on the time of day. For the bigger picture, see this interactive Bitcoin node world map. Here is a snapshot:


Here again, we see the emergence of a new form of order that no one planned, no one fully anticipated, no one controls. It is built by the choices of individuals, one trade at a time. The self-interests of the traders coincide with the great good of humanity in building structures outside the regime.

This is only a small sampling. When you consider the sheer size and scale of the global economic order — all its trades, its financial networks, its capital markets, its institutions, its complexities — it now far surpasses anything that be comprehended by those assigned to control them. It is, in fact, outside the control of states. It is beyond geography and being politics.

This emergent reality contracts everything that was assumed at the start of the 20th century. States were supposed to plan. Societies were to be managed. The global order was to be organized by nation-states that would negotiate as if they were homogeneous units with interests and goals. The only planning, communication, and substantial action was to be regime planning, communication, and action.

A century later, this whole system is blown up. And the situation is even worse for all prevailing regimes. Fiscal policy as conceived by Keynesian theory is proven worse than useless. It has saddled the world with unpayable debt and trapped governments in an impossible situation of having made ridiculous promises that can’t be kept.

Similarly, its monetary policies are ineffective and dangerous. Central banks of the world are devoting all their efforts to saving their client banks from market pressures, rather than conducting the “scientific” monetary policy envisioned by technocrats a century ago.

Textbook theory and real-world practice diverged in the extreme.

In fact, the technocrats of all stripes stand demoralized and largely out of ideas. Their communication systems are irrelevant. Their social welfare systems are abused to the point of absurdity. Their schools function only thanks to the infusion of private resources and energy. Their transportation is strained because of lack of money. Their security systems are a laughingstock.

Their wars have been so ineffective that even the politicians who still wage them sense that they gain more propagandistic advantage from proclaiming their devotion to peace, rather than pretending that imperialism is doing anyone any good. Plus, armies are an expense that not even governments want to pay for as they once did.

The people are taxed out. The true nature of political systems — all designed with the idea of serving the people — is so famously corrupt and ridiculed in endless streams of movies, shows, comedy routines, jokes, songs, memes, and novels. The reality is increasingly obvious: While many people seek temporary gain from the system, most people are seeking permanent escape. We no longer believe.

What about political parties? They are the archetype of public-private partnerships. They exist to serve the regime primarily, but also to launder money from interest groups in the private sector to the political class and back again to those groups in the form of protection and favors. That’s their whole purpose. People who take their stated purpose of somehow “representing the people” seriously misunderstand their raison d’être. Those who attempt to crash them and force them to achieve some imagined democratic ideal will always and forever be shut out and punished.

Experience is revealing all these things, season by season.

Think of the regime as a huge and glorious mansion with beautiful pillars. But inside those pillars and under that foundation are tiny termites that have eaten away at everything that keeps it standing. It still stands. It still looks pretty. But it is shaky and strained and weak.

A century ago, regimes jumped at the chance to run the world, but they overreached and now face certain failure.

Even as this takes place, a new order is being built by people every day. We are discovering in the 21st century that we the people have more in common than any people has in common with their own government.

[Note: The best single book on this overriding theme, written at the depths but seeing the light at the end, is Frank Chodorov's The Rise & Fall of Society. We made it a Club selection for a reason: It is an epic contribution that reveals the dynamics of history. Our new special edition is free to Club members.]

The story of the next 10 years will be thrilling to tell in retrospect. It will be a story about the failure of one way of living — one dominated by rulers and their plans — and the rebirth of another way of living entirely built by human volition. We are at only the beginning stages of this new era. More of the new edifice is being built by the day.

The Twitter and Bitcoin maps are keys to understanding where history is headed. In the big picture, the old regime is dying, and we all need to accustom ourselves to living without it.

That means reducing dependence on the physical structures that the regime controls (including its promises to care for you in old age), learning more about the dynamics of the spontaneous order of voluntary associations (this is the purpose of the Laissez Faire Club), and increasing attachments to authentic human associations rooted in liberty.

To get to the end result will not be without friction and difficulty, and the attempt to sustain the old model will create many victims along the way. But the end result will be a wonderful thing to behold.

Jeffrey Tucker

Original article posted on Laissez-Faire Today 

How Digits Are Reinventing the World Order appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

A Golden Pinnacle

Gold’s mojo has vanished.

And if stocks have any say in the matter, it isn’t coming back anytime soon.

I love my charts. But I don’t need a picture to show you what’s going on here…

By now, you know the trends. In the 1990s, gold was stagnant while stocks enjoyed an extended bull run. As stocks started to fall out of favor in the early 2000s, gold’s massive rally began.

Right now, another shift is brewing. The tide is turning in favor of equities.

After more than a decade of panic and despair, stocks are attracting the attention (and dollars) of the investor class. More than $34 billion rushed into stocks in January, according to Lipper, the most in more than 15 years. This is just a drop in the bucket. Investors have much more tied up in bonds and cash. They will look to put this money to work soon.

It’s impossible to argue against these powerful market cycles. You can point to the Fed and the sinking dollar. Yet neither of these forces can offer gold the momentum boost it experienced on its run from $300 to more than $1,900 at its most recent peak. During the past decade of crisis, gold was the best performing asset on the planet. Its days as a leader are now numbered…


Famed technician John Murphy explained in a weekend blog post that “…stocks should become the most favored asset class in the years ahead… Treasuries will probably be the biggest losers. Gold may benefit from a falling dollar to some extent, but probably won’t do nearly as well as it did over the last decade because of rising stock values.”

Now, before you come after me with a pitchfork, you should know that gold is not heading for a nasty collapse. It will hold its ground. And it will continue to wander through intermediate highs and lows.

However, speculators who have played gold and helped push it higher in recent years won’t be around anymore. If you buy gold now, treat it as a safe haven. If you jump into a gold position this year expecting explosive gains, you’ll find nothing but disappointment…

Greg Guenthner
for The Daily Reckoning

A Golden Pinnacle appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

The “Reality” Of Metals Investing

I don’t know about you, but here in Pittsburgh, the weather has been crazy. Zero temps and subzero wind-chill early last week, with lots of snow. Then later on? Mild, springlike temps and thunderstorms. Now, though, it’s back to the deep freeze, with vicious winds.

Two words come to mind: San. Diego. Investmentwise, two more words come to mind: Precious. Metals…

Through the ups and downs I see basic support for precious metal prices — gold, silver, platinum and palladium. They’ve found a floor. Prices are holding, with plenty of inflation built into the dollar supply (no matter what you hear in the mainstream), courtesy of the Federal Reserve and its $85 billion per month of bond buying. There’s just a lot of Keynesian thinking at work. Too much, some might say.

Platinum and palladium (PGMs), as I told you about last week, are a solid buy. I see limited downside with this one, because the supply deficit in the PGM metals is here and not going away. The demand side is primed to explode.

For those of you who want to accumulate a stash of something else, I suggest you skip the gun shows, where AR-style weaps are about triple the recent price. Instead, go for physical silver just now. Of course, don’t turn down the chance to buy physical gold, either, if you can get it without too much in the way of markup. If you do NOT hold any physical metal? Get some. Gold. Silver. (Don’t forget brass, if you know what I mean.)

On the merely valuable side — but not quite as precious — copper prices are firm too. The recent price for copper has been solid, within a dime or so of $3.70 per pound. There’s no apparent demand weakness, what with globally active construction and industrial activity.

This is not a “China boom” time for copper, like five or six years back, but things are better than a lot of people think. I believe that a company like Freeport-McMoRan will have solid earnings this year and its share price will benefit.

Switching metals, let’s discuss uranium. The spot price of which — at $42 per pound — is ridiculously low and set to rebound. I had a long discussion with a couple of serious uranium scholars earlier this week. They’ve been doing uranium in both government and private industry since the 1970s. They’ve seen all the different rodeo acts.

These gents laid out a strong case for strengthening yellowcake prices this year — 2013 — and well into the future. “Yellowcake,” said one, “is comparable to where gold was 10 years ago. We’re looking at prices four-six times higher in the out years.”

That’s quite a claim — $150-250 per pound — and if it works out, it makes great news for uranium producers. You know, the guys that are already producing the stuff.

Begin with the eye-popping cost of acquiring “new” uranium supplies. When you add up all the exploration and development costs, a new uranium mine scopes out in the range of $100-120 per pound. This is nearly triple the current spot price. And it’s before you factor in the vagaries of future tax changes and higher interest rates. After all, it pays to build a mine only if there’s a decent return on investment.

Expanding existing mines, on the other hand, is problematic. Everyone who’s trying to expand a mine confronts serious sticker shock. Look, for example, at how BHP Billiton deferred expansion at the gigantic site at Olympic Dam, Australia, as costs topped $20 billion.

A 10-figure level of capex approaches the limit of private enterprise in any respect. That’s big, even for the oil industry, let alone miners — and I mean even the biggest of the big. We’re talking about a major defense program or space program level of capex, plus comparable difficulties in recruiting personnel, developing technology and scheduling the whole thing to work over a decade or more.

Look at it another way. Who can afford to make those kinds of energy investments? Governments, perhaps. Or more likely, government-industry partnerships. In the future, look for business forms in which the mining consortium becomes sort of a public utility, with all the legalistic bells and whistles something like that entails. But without government help? Big energy projects likely won’t happen. And then there goes the supply curve.

On the demand side, the China story is “real and getting more real,” according to my sources. The Chinese need electric power, and they’re currently burning coal because they have it, not because they want to. Chinese air pollution is now a national problem — as I discussed in the article noted above. Inside China, large future power projects all have to show an environmental angle to receive state approval. So says the Communist Party.

Across the sea from China, the stories you hear about Japan eliminating its nuclear power plants are “fairy tales,” according my sources. After the Fukushima disaster, two years ago, initial sentiment in Japan was to move away from nuclear power. It was all emotion. “And then came reality,” the man said.

Basically, Japan looked at the bill for importing liquefied natural gas (LNG), now in the $20 per mcf range. Plus, Japan is watching China build up its navy, which threatens Japan’s sea lines of commerce and communication, pertinent to oil and coal imports.

The bottom line is that rebuilding its nuclear power base gives Japan another reason to pour more concrete, which is as much a Japanese national pastime as baseball.

Unlocking Value in the Oil Biz

Let’s look at the oil side of things. There’s a trend within the industry, within shareholder groups, to demand more and better return from management. The movement is getting much stronger, and this may be a year to remember.

There’s a shareholder push at Hess Oil, for example, to move the company to deliver higher returns. Hess has already announced that it’ll close its aging, 70,000 barrel per day refinery at Port Reading, N.J. The facility is another casualty of weak refining profits on the East Coast in recent years.

Beyond closing money losers, however, there’s the possibility of Hess spinning off its entire exploration and production operation in the Bakken Formation of North Dakota as a separate entity. Hess shares have climbed on the news (as Dan Amoss wrote about on Friday.)

Elsewhere in the oil patch, similar shareholder activity is rattling the dishes. There are plenty of opportunities out there, as my paid-up readers know.

MENA Problems

Looking ahead, I see better days — better years, actually — for offshore players. Offshore is where there’s lots of oil. Also, offshore, there are far fewer Islamist terrorists.

The recent attack on the BP facility in Algeria marked a milestone. Up to now, the energy industry had an acceptable working presence across the Middle East and North Africa (MENA). Shiny, energy-producing technology existed side by side with the ancient caravan routes. Westerners did their work and kept a low profile. There wasn’t too much trouble — occasional, but manageable.

That is, up to recently, people made deals and drilled wells. Oil and gas flowed to the coastlines, to refineries, tankers and transoceanic pipelines. Everybody got paid.

Now? With the BP attack in Algeria? The terrorists have determined that Westerners and energy interests are fair game. It’s part of the militant Islamist awakening across MENA.

It doesn’t really matter that the Algerian government sent in troops almost immediately, guns blazing, and wiped the terrorists out to the last man. The global energy industry — Western players, but national oil companies, as well — must deal with the new reality of development amidst a vast battle space of irregular warfare. It’ll make everything more difficult, time-consuming, costly, riskier.


What’s the answer? There’s no real “answer.” You just have to deal with it. Welcome to the 21st century. You’ll have to invest around it. And on that note, thank you for reading.

Best wishes,

Byron W. King

Original article posted on Daily Resource Hunter 

The “Reality” Of Metals Investing appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

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