Gold Stocks are Getting Ready to Lead

18 February 2007

Sentiment has become increasingly bearish on gold stocks relative to gold since late 2003, and this can be seen in the decline of value of the Gold Bugs Index (HUI) relative to the price of gold since that time.

Increasingly, we hear of the difficulties faced by gold producers, including rising political risk (including exploitative government intervention in unstable countries ranging from Venezuela to Bolivia to Eritrea to Russia to Indonesia), rising costs of equipment and energy, power shortages (Ghana), regulatory delays and blockages, labour unrest and sabotage, price to earnings ratios that parallel those on the NASDAQ exchange during its bubble days (and that bubble has many years of unwinding still ahead of it), difficulty raising funds for development and exploration (the broad market is still focused on yesterday’s favourites in such sectors as technology, finance and housing), environmental concerns and local community objection to mine development.

Additionally, some bellwether gold mining stocks are floundering, and these range from Newmont Mining – facing production declines, leadership turnover and problems in almost all of the above areas, to Gold Fields – facing declining reserves, a deteriorating political climate in South Africa and unimaginable cost increases, to Barrick Gold – still weighed down by the costly legacy of its bear market hedging practices, to Iamgold – facing a work stoppage and vicious acts of sabotage, to companies such as Nevsun, Crystallex, Gold Reserve and Apex Silver – facing political risk and government exploitation in the unstable countries where they operate.

My present purpose is not to evaluate the above problems, except to say that many environmental and local community concerns may be quite valid, and that a number of the above-cited problems are obviously going to worsen further.

However, markets inevitably turn at times when bearish sentiment preponderates, and in my view, that is certainly the case in gold mining stocks relative to gold today.

As the Aden sisters recently indicated, fundamental concerns tend to drive investment markets, but technical patterns direct their movements. As a psychologist (and let me prefix the term “amateur” when it comes to applying any knowledge I have to investment markets), technical indicators greatly interest me, as they are no more than a graphic representation of the collective behavioural patterns of humans. Therefore, I take technical patterns as very critical scientific data with respect to human behaviour in the investment markets.

At this point, the technical indicators are telling us that there is an overriding fundamental pattern that is favourable to gold miners, and it is not being discussed enough.

That pattern is the ineluctably rising price of gold, in particular, the movement of the price of gold into a new and stronger uptrend channel which launched in the last quarter of 2005. Behind gold’s stellar rise are the global fundamentals which support its climbing nominal (currency) value, and these have been well-described by countless others. Suffice it to say that the global trend of currency deterioration (monetary inflation) and associated increasing political instability (I believe the two are causally linked) will be powering the price of gold upwards over coming decades (in my opinion, for an additional 2-3 decades).

Does the rising price of gold cancel out the other risks and problems associated with the gold mining business?

In a word, yes, regardless of how formidable these particular problems may be.

The rising price of gold essentially trumps the myriad quite genuine and in many cases escalating problems faced by those in the gold mining business.

But there is also a second reason to favour the gold miners at this juncture, and this relates to a well-known fundamental factor of market dynamics. That is, the multitude of difficulties associated with operating mining companies create massive barriers to entry, and this lends powerful advantage to those with their foot already in the door of this perilous but profitable business.

In one of the market’s ceaseless paradoxes, the massive difficulties associated with operating mining companies functions in their favour in terms of market valuation. The primary advantages are two.

First, global gold mining production is still falling, despite the fact that gold is now in its 6th year of rising (it will soon triple its bear market lows of ($252.50 - $255.00 from 1999-2001). Why is production declining under favourable market circumstances? For all the reasons we have just discussed.

And that leads us to the second benefit enjoyed by existing mining companies. The lengthy (often 10-15 year) and perilous process of acquiring mining claims and developing mines to the operational level offers a potent first mover advantage to those mining companies that were visionary (and fortunate) enough to be able to move forward with property acquisition and mine development plans during gold’s brutal 1980-2001 bear market. It will be many years before new entrants on the scene can hope to catch up.

This fundamental situation will power the price of gold higher over coming decades.

And, very soon, this fundamental situation will again give impetus to the value of gold mining (and other precious metal) equity investments.

What causes me to assert this?

Here, I redirect my discussion from market fundamentals to technical indicators.

The bearish view of the gold mining business has pushed the value of mining stocks to the very bottom of their uptrend channels.

A close view of the charts shows that the price of gold launched a new uptrend in mid-2005, and despite the bearish view of their prospects relative to gold itself, gold mining companies led this trend change by several months after bottoming in the second quarter of 2005. That in itself is a bullish indicator for the value of gold stocks.

However, while gold moved firmly off the bottom of this fundamentally favourable channel after re-testing it in early January, gold stocks have followed, but demonstrated less energy in their rise.

Similarly to gold itself, gold stocks have until recently been locked into a triangular consolidation pattern. However, gold broke out of this pattern to the upside on February 9, 2007, and the Gold Bugs Index (HUI) is indicating that it will soon follow (perhaps one more pullback over the next 1-2 weeks is possible).

This brings us to the topic of the HUI:Gold ratio (which I have discussed previously). This ratio defines the value of unhedged US gold mining stocks relative to the price of gold, and it reached its bull market peak (.639) far back in November 2003, and is presently languishing at .52.

However, while most all eyes have been elsewhere, this ratio has steadily been climbing (also in a triangular consolidation pattern), with lower highs, but also with higher lows. This triangular pattern is set to break by mid-2007, and the odds favour an upside move.

Why is that?

While both the price of gold and the HUI index itself have moved into new uptrends since early to mid-2005, the HUI:Gold ratio is locked into a single trend which remains unbroken since late 2001. The likelihood that this uptrend would break down while gold and the HUI are now advancing in new (power) uptrends seems highly unlikely for fundamental reasons.

That is, the HUI:Gold ratio must soon break either up or down, and a downside breakout is highly improbable.

While I lack the tools to illustrate it, the more probable course is in fact to retest the top of this uptrend channel at some future point – and in my view, this could possibly occur as soon as mid-2008 (though possibly later). This would imply a dramatic upwards move in the Gold Bugs Index at a time when all eyes are focused elsewhere – and of course, this is just the kind of “trick” that defines the capricious nature of market behaviour.

In short, I am saying that due to strong market fundamentals for the value of the product which gold mining companies produce (gold), and due to lagging global supply and still very formidable barriers to entry, the investment markets will favour gold mining stocks relative to the price of gold over the next year to year-and-a-half – and that this will take place precisely when few, even in the gold community, are giving much thought to this possibility.

My conservative target (and I am not a professional investment advisor) is 480 for the HUI. However, at whatever point the HUI:Gold ratio again moves to the top of its multi-year uptrend channel (and tops do get tested as well as lows), the HUI:Gold ratio would reach .80. Were gold to be trading in the $1000 range at this time, it would imply a value of 700-800 for the HUI, and this would be double current levels.

I entirely concur with Goldrunner that the next HUI peak will be at the 480 level and probably this year, possibly only a few months away, and that an upside test in the HUI:Gold ratio’s 5-6 year uptrend channel could bring the HUI to the 700-800 range by as soon as mid-2008 – though the upside test might in fact require more years than that to develop.

While I am uncertain that we will see a doubling in the HUI by mid-2008, what I think is almost inevitable is a retest of the previous top in the HUI:Gold ratio, and that was .639 in late 2003.

In this case, again with gold in the $1000 range, the HUI would at the least advance to the mid-600 level, and that would take it 300 points higher than its current value.

Let me also address the perplexing issue of the “slowness” of the advance of both the price of gold and the value of the Gold Bugs Index in a bull market.

Those who are looking to find “literal” parallels with the 1970s bull market are sure to be disappointed, as the dramatic eightfold increase from 1977 to 1980 will not be repeated in the present bull market at this time (and dismiss such talk if you begin to hear it even as the market advances).

This misconception arises from misunderstanding of the fractal nature of investment technicals. That is – our present fractal is extended in both duration and amplitude, and at this point, duration trumps amplitude. That is, an opportunity for an eightfold or greater increase in the price of gold is quite probable in the current bull market, but certainly nowhere in the near future. In the present much stronger, fundamentally-driven and therefore much more slowly advancing gold bull market, such a dramatic “end game” move will be many, many years away – and this is a good thing.

In fact, let me put this in perspective by referencing my earlier discussion (based on the Adens’ research) in “A Three Stage Gold Bull Market?” that the ratio of the market value of gold mining stocks to the price of gold has been in an over-three-decade-long downtrend. It would be highly unusual for such an adverse relationship to persist in a gold bull market.

Thus, if this multi-decade trend is to turn in favour of gold mining companies, in my view, the greatest likelihood is that this reversal will in fact take place in mid-2007. As this would signal a breakout from an almost four-decade-long secular downtrend, it would be a quite exciting event – though I think it almost certain to go widely unheralded.

Let me add that the break of the four-decade downtrend could in all probability signal the birth of an uptrend in the value of gold mining companies relative to the price of gold which could quite conceivably endure for a similar time period (that is, on the order of a third of a century).

The unhurried and meandering pace of the third millennium gold bull market reflects the much greater strength of the present market when contrasted to the “brief period of excitement” that characterized the 1970’s bull.

My central thesis here is that our current gold bull market is actually built on much firmer fundamentals than was the 1970’s gold bull, and thus that it will advance over a much lengthier period of time, and correspondingly, advance to much higher levels.

That is, slower is stronger.

So enjoy the lengthy journey of the bull market in gold and gold equities, and take pleasure in the many delights that it holds in store for us along the way – though let us not forget to take caution that bull markets inevitably surprise us with vicious downtrends when our optimism is at its peak.

ADDENDUM: Could I be wrong? Well, that question is easy to answer. If anyone were right every time, that person would soon control all the resources in the investment marketplace – and at least one has come close – as Warren Buffett has made amazingly few long-term errors over the half-century course of his investing career. And Mr. Buffett does in fact own a huge personal portion of the investment marketplace, thereby coming as close as anyone to demonstrating that my thesis (about being right every time) is correct.

That is, were he perfect, Mr. Buffett would in fact own it all. Though he does not now own absolutely everything, Mr. Buffett has certainly come closer than anyone else to achieving this.

(Disclaimer: I know with absolute certainty that I am not as smart as Mr. Buffett.)

One historic mistake on Mr. Buffett’s part: Mr. Buffett purchased Euros at a timely juncture, but he would have done better still by buying gold, a currency he disfavours to his modest personal disadvantage.

How might I be wrong?

I could be wrong about the gold price moving up relatively soon this year. I could be wrong about the market’s willingness to look past the formidable and multitudinous problems of gold mining to see the long-term advantages. Most specifically, I could be wrong that the HUI:Gold ratio will break up rather than down.

Why might the HUI:Gold ratio break downwards rather than upwards?

Well, the gold mining business could get even worse than it already is (hard to imagine but possible).

Gold could lag or pull back, stalling in its climb (easy to imagine, but unlikely for both technical and fundamental reasons).

The Gold Bugs Index could decline in sympathy with a drastic downward break in the broad financial markets (this in my view is a high probability scenario and almost certainly will happen at some point, though I presently favour a scenario in which general equities continue their 8-year stall and gold and gold miners continue to advance, at least for now. I am more sanguine about “more of the same” in the broad markets for 2007, but pretty nervous about 2008, but that is too many steps ahead, and unknowable until it actually happens.)

I apologize that I lack charting tools to illustrate the trendlines I have described,

I will present some relevant charts below.

1. Gold started a new uptrend in mid-2005. It is presently headed to retest the 1980 high in the $800 range, and then higher:



2. The Gold Bugs Index (HUI) launched into a stronger uptrend in early 2005, and is presently headed to highs near 480 and then in the mid-600s, and at some point, approaching 700-800:

3. The HUI:Gold ratio, long neglected due to basing since its 2003 peak, can go little further forward in time without initiating either a new advancing or declining phase. A decline is less likely in my view for both fundamental and technical reasons, and so a powerful advance is likely to begin no later than mid-2007. The 2003 high at .639 will be retested, and at some point, perhaps years away (but possibly as soon as 2008) the top of the uptrend channel will also be tested, and this would be at the .80 level, implying a doubling or more in the Gold Bugs Index from its present levels over perhaps the next 1-3 years.

It's a Toppy Market

16 February 2007

Today I want to comment briefly on a widespread but dangerous popular misconception about the US stock market. The stock market bulls are beginning to ridicule the bears. This was recently done by a smart and quirky, and usually contrarian thinker, whom I will reference here – Cliff Droke. In his February 15 article, The Cult of the Bear, Mr. Droke states:

“A gradual procession of super bears has been quietly admitting they've been wrong in their bearish assessment of the stock market. As the major stock market indices continue to push to higher highs and as market internals continue to reflect a stellar market condition, even the most stubborn of bearish traders and market commentators have been forced to reconsider their positions. Slowly, and with little fanfare, they've been covering short positions.

“Yet these same died-in-the-wool bears refuse to turn bullish and are now standing idly on the sidelines watching stock prices move ever higher. If they can admit they were wrong to sell short, why can't they bring themselves to become buyers in what is obviously a strong bull market?”

OK, you may be thinking, that was a moderate enough opening gambit. But now consider how Mr. Droke closes his article, with a newly penned piece of verse:

The Bears' Lament

"The sky is falling" or so we're told,
but these pronouncements are growing old.
"Sell stocks and bonds and bar the door!"
Haven't we all heard this before?

"The crash will come," the bears intone.
Too bad for them their shorts are blown.
Perhaps they should give the charts a look,
and see the market they all forsook.

Instead of taking their bad advice,
The investor should ask, "At what price?"
For they've missed more than one bullish run:
no sense in missing another one.

Having read Mr. Droke's work for years, I can attest that he knows better than to spout such ideas so uncritically. He is a very intelligent man, if also perhaps a renegade thinker. But obviously his success in reading the technical indicators behind the current broad market rise has given tailwind to his hubris.

What then could be at fault in Mr. Droke's logic?

My reply would be: its fundamental premise – that stocks are in fact increasing in value.

Let us take the Dow Jones Industrial Average as our landmark evidentiary exhibit. As I have earlier demonstrated on this same site, the Dow Jones Industrial Average has continued to collapse in terms of the world’s primary inflation-proof currency – physical gold, and this all-too-obvious collapse will enter its 9th year later this summer.

Let’s update that chart here.




As you can see, the Dow Jones Industrial Average has been cascading steadily downwards since mid-1999 – when priced in a currency that is not subject to inflation. And this collapse is in fact occurring as the nominal value of the Dow has reached a new record level.

What then is the critical flaw in Mr. Droke's argument?

When the trend of the Dow turns negative in nominal terms – and that day is at some point inevitable, for reasons already well-described on this site – the gentle cascade downwards will morph into a furious and collapsing torrent – as the signature index of the market value of America's pre-eminent corporations yields to the adverse impact of past decades of brazen monetary manipulation.

What has blinded Mr. Droke?

He has forgotten that the US dollar is an arbitrary indicator of value, that it is falling drastically against most other global currencies, and that it is collapsing even more dramatically against the value of gold (and let us not even discuss silver, where the pattern of the dollar’s demise is more dramatic still).

Mr. Droke’s mountain of dollars is diminishing from within even as it expands, bubble-like, to superficial and external view.

(Let me close with a note of respect to Mr. Droke, as I know him to be a sage interpreter of the precious metals markets who has taught me much. May he only be wise enough to convert his dollar holdings to gold at an opportune moment so as to preserve their ever-diminishing value against a currency that he knows full well to be considerably more reliable.)

A Potentially Misleading Analogy

15 February 2007

Puru Saxena published an excellent article on Safe Haven today. The link is below.

http://www.safehaven.com/article-6921.htm

While Mr. Saxena’s article was extremely thoughtful, it does reflect a particular error which could potentially be quite misleading to gold bulls. Mr. Saxena’s overlay (naively) makes it appear that we are now on the verge of a gold market collapse. However, if one considers the fractal analysis, referred to on my blog only yesterday, it is quite clear that something else is afoot. That is, the illustrated parallel between our present bull market in gold and the previous bull market has become distorted due to an overly literal juxtaposition of the two charts.

As you will see, the grey line is the 1970’s bull market, and the dark line our present one.

Based on the analysis about which I commented yesterday, we may very likley be at an entirely different analogous point on the chart in terms of our present gold bull market position. To make my point, some mathematical alteration of Mr. Saxena’s overlay would certainly be required (and this is well beyond the range of the tools or time I have available).

In fact, look closely, and you will see an immediate problem with the overlay. The 1970’s chart is based at exactly zero, but the current chart is based at $200. So already, the analogy is distorted.

Why then are we not in synch amplitude and timewise?

Well, to start, as many much wiser than I have observed, history doesn't repeat, it rhymes.

I think the present bull market will likely be longer, and thus stronger, than the 1970’s bull market (which occurred in conditions of global adjustment far less extreme than at present). It is therefore not at all certain that the present bull market will wrap up and flame out by 2011-14 (as using the above-illustrated analogy might lead one to conclude).

Further, inflation-adjusted charts have never to my knowledge been made with accurate estimates of the cost of living increase. While the current mantra is that the 80’s peak in the value of gold was $2000 inflation-adjusted, we probably need to move closer to $3-4000 to reflect the true cost of living increase. And given that inflation is likely to persist during the upcoming decades, further adjustments to our inflation-adjusted target also need to be considered.

I lack the tools to verify this, but my suspicion is that to graph our present market against this chart, we would have to compress the present (1980-2007) chart from decades to mere years. In that case, the first (and largest) “hump” would be the analogue of the 1980 bull market top, and our present position would be directly horizontal to that, about 4 years further forward.

That is, my intuition suggests that the 1970’s first peak near $200, which pulled back to about $100 before recovering, is analogous in our current chart to the 1980 peak, with its ultimate retreat to near $250 (much more severe in fact, particularly considering the ravages of inflation during that lengthy period).

So, in yet another fantastical leap, let me suggest that what took only 4 years to occur in the 1970’s bull market (that is, the fall from and eventual recovery to the $200 level), is in fact the analogue to the entire span of time from 1980 to the present, or 27 years. This easily implies that this gold bull market could run an additional two or more decades before exhausting itself.

My suggested time-compression ratio?

A very rough estimate is 10:1, perhaps 8:1.

The vertical multiplier?

I do not know, but the ratio is nowhere near one-to-one. A present estimate would be from 2.5:1 to 4:1, but we are 2-3 decades away from the implied target price of $2,000 - $3,500 in 2007 US dollars.

Therefore, a significant inflation adjustment will be required, and that would almost inevitably lead to an ultimate target for our present gold bull market of greater than $5,000 per ounce, with the unknowable upper limit depending upon the toll taken by continued monetary inflation.

We are further back, and have much longer to go, than a direct analogy to the 1970’s might imply. A very rough estimate, based on annual inflation at 5% (inflation is presently drastically under-reported, and I expect inflation to move higher for monetary reasons), is that somewhere around 2030, we will be seeing a gold price at ten to fifteen times today's levels ($6,000 - $10,000 per ounce), and in constant 2007 dollars, at 2.5 to 4 times 1980’s peak level ($2,000 - $3,500 per ounce).

Fractal Charting

14 February 2007

I wish to commend to you to the work of a very brilliant (amateur) analyst who is studying precious metal investments using a method referred to as fractal charting. He goes by the name of Goldrunner, and in my opinion his work is groundbreaking.

I have done a web search, and others are using this method. However, due to my limited experience, Goldrunner is the only person I know to be applying the method of fractal charting In the area of precious metal and currency investments.

Goldrunner’s most recently published article draws a fascinating parallel between chart patterns in gold in the 1970’s and today. If Goldrunner is right, then the precious metals markets could remain strong from now through mid-2008 (that would be an unusually long period of strength).

As do I, Goldrunner holds that the gold bull market is advancing in waves (or stages). He is thus suggesting that the new uptrend being formed might persist for about as long as did the one from 2001 through late 2005. You may recall that in late 2005, gold began to surge into the uptrend which we are presently experiencing (peaking in May 2006, but still going strong).

As do all freely-traded items, the price of gold tends to move in channels, and within the channel, the movement can be quit violent. But if Goldrunner is correct, the next year might prove to be a period of smoother than usual sailing.

Well, I was trained by the boy scouts, so I'm battening down the hatches anyway. But if the sailing should prove clear over the next year, it would make the trip all that much more enjoyable!

For those of you interested in exploring Goldrunner's work in more depth, here is an index to his work: Gold-Eagle.com Goldrunner Index.

Goldrunner references the work of Dan Norcini (a colleague of Jim Sinclair and regular contributor to JSMineSet), and here is the long-term gold chart to which he is referring.

A proposal to establish the Third Millennium Utopian Party of Canada (At Present a Fantasy)

12 February 2007

Perhaps another way of expressing my views on the topic I addressed at length on February 9 is to state that the left-right debate has become stale to the point of emitting a detectable stench (I could use stronger language here).

We might say that the world – or at least our understanding of it – has changed, and that both the left and the right have lagged behind these changes. It seems that the only area of observable advancement is in the implementation of strategic tactics to co-opt the media to promote the interested party’s spin on current events.

I was struck by a CBC Radio feature yesterday which summarized the new emphasis on sound bites and spin in contemporary political discourse. The central message of the CBC piece is that the media for the most part are now basically incapable of representing, let alone originating, thoughtful conversation on the topics of our day.

The mainstream news media offer only a few seconds for an idea to be expressed, and only sound bites are effective in this environment. The sound bite must be snappy and appealing, or fade rapidly into the ether, to be replaced by the next, and pithier, sound bite on the same or a different subject.

Additionally, public debate has degenerated to the level of the Roman coliseum, with only forceful and argumentative representations of issues constituting sufficient entertainment value to capture the interest of the presumed otherwise-preoccupied or politically illiterate electorate.

The primary marker of “spin” at work is when reporters indicate that an “unidentified source who cannot be named” has commented “in advance” on a topic that a particular politically interested group wishes to present to the public with the intention of gaining initial sympathy to its agenda and interpretation of events. Timing is calculated so that reporters have little opportunity to obtain opposing information, and thus the well-placed sound-bite is reported end-of-day, and stands unchallenged in the spin cycle of 24-hour news.

My thoughts on this bankruptcy of the politics of right and left, and the corresponding failure of the media, are of course only partial, and political discourse is at most a “sometimes” area of interest in my own life. But from another perspective, all of life is politics, and the inability of our leadership on the left and the right to address the issues now shaping our world is a matter of critical – and for many affected individuals, daily – concern.

In my recent post, I addressed the issue of moral courage, and I do believe that such courage has been lacking. It is easier to yield to the strong – even violent – emotions of others which underlie their adherence to “correct” thinking than it is to take the path of Socrates and engage others in dialogue to explore the deeper implications of their ideas (and we all know the consequences of doing this for Socrates).

I think what I communicated in essence on February 9 is that we feel responsible when we take action directly, and absolved of responsibility when actions are taken by others. Thus the politically correct on both the left and the right arrange their thinking and behaviour so that it is not necessary for them to address the unintended (and often injurious – sometimes horrendous) consequences of their displacement of responsibility either through inaction, through avoidance and denial, or through attribution of responsibility for the cause or remediation of the problem to a third party.

Therefore, the problem is not only about the failings of courage – I'm sure that the politically correct can be courageous in arenas apart from their unquestioned political certainties. It is also about the failure of vision – to look beyond the familiar to the unfamiliar, the threatening and the unknown.

Let me say something more about the psychological process that is involved in this process of “revisioning” (a neologism coined by Robert Theobald – a man who greatly inspired my mother – shortly prior to his death, and meaning to reconsider a perplexing issue from a new and broader perspective).

Morality in my view is the process of taking considered but direct action to determine how the inevitable harms associated with difficult decisions should be allocated. Political correctness is therefore motivated by the need to establish and live within a zone of comfortable certainty which spares us the agony of moral decision-making.

Through the very nature of the process by which they are framed, the issues championed by the politically correct seduce us into a distorted perspective on the difficult questions which they are interested in addressing – or avoiding.

For example, with respect to the “embryonic stem cell” debate, the label itself draws our attention to the embryo. Of course, each of us was once an embryo too, and we would not have wanted anyone to tamper with our stem cells during the earliest stages of our formation. From the outset, this pre-framed perspective yields an instinctively powerful response in favour of the rhetoric of the politically correct position.

However, this debate is also about the suffering of mature individuals with genetically-based illnesses, and Michael J. Fox has chosen to make himself a public example of this “less correct” perspective by speaking in favour of embryonic stem cell research In the case of Parkinson’s Disease. Who on this side will stoop to argue, “I was once an embryo too?” Yet that is in fact at the heart of the matter.

By the nature of the context in which the debate is framed, we think instantly of the sanctity of life of the embryo, the source from which each of us was formed. It is far more difficult – in fact, a strenuous effort – to consider the perspective of the person with a genetic illness. And if we are not a person with such an illness, or do not have a relationship with one or more such people, it will be very difficult to frame the alternative position in this debate. In part, this difficulty is due to the fact that the esteem with which we regard embryos is generalized and universal, whereas the suffering of persons with genetic illnesses is particularized and highly variable.

In its simplest terms, the debate becomes distorted, because it is easy to think about embryos, and difficult to think about persons with genetic illnesses (even if we have considerable knowledge of the subject). The same can be said for the other subjects I addressed on February 9.

That is, it is easier to think about the rights of suspected criminals (whose actions are on public display, and who, like ourselves, might suffer needlessly if misunderstood, misrepresented or even “framed”) than about the rights of their victims (whose stories are complex and rarely fully told, if ever told at all).

Corporations are visible, and they are obviously amassing great wealth through the conduct of their businesses. We forget that corporate wealth is the source of our society’s wealth, and enriches our society at many levels. It only seems fair that this wealth be redistributed, Robin Hood style, to the individuals who have been personally injured through the use of tobacco, asbestos or the unintended side effects of pharmaceutical products.

Similarly, it is apparent that Islamic militants are attempting to cause us harm. It is more difficult to piece together the complex web of relationships within which their aggressive actions represent a settling of grievances with us collectively due to our imperialistic legacy, or alternatively, how their behaviour might serve as a convenient platform for them to displace responsibility for home-grown issues which we bear no responsibility for creating.

Therefore, without further ado, let me now make an idiosyncratic proposal for my fantastical view of a utopian political party for the third millennium that might function differently than the left and the right. Let me address this in the Canadian setting, as this is where I have now lived and made my home for over 35 years. I caution that the following “party platform” is purely a fantasy exercise on my part (at least at this point!). Obviously others might choose to join me, tacking on their issues of concern as well, if they find anything to agree with here, or might propose a party of their own if my ideas don't work for them. (Sorry, I do claim precedence for the title, “Utopian Party of Canada.” Those who choose to create other “fantasy” parties will be required to deploy alternative terminology.)

Let me emphasize that if my central thesis is correct, that the existing parties and ideologies are now failing us, then we literally do not know what should replace them. So we are clearly exploring uncharted terrain together, seeking to find a new way – for Canada, perhaps a “Northwest Passage” through the third millennium….

Here then is my entirely partial and idiosyncratic “fantasy” agenda or platform for the Utopian Party of Canada:

1. Public opinion polls would in most cases be used as contrary indicators, because the party has committed itself to leading the people, not to following them.

2. Discourse on the problems of the day would be lengthy and detailed rather than brief and snappy, and would be sober and reasoned, and free of yelling, interruption, and aspersions on the character of persons representing contrary viewpoints.

3. The party’s broad policy would be to reward desirable public behaviour and to withdraw rewards for directly harmful public behaviour, through incentives where possible and through sanctions where necessary.

4. Our nation’s wealth would be seen to derive first and foremost from economic freedom and thereby from productive economic activity attained by promoting business development at the corporate level, and by promoting business participation at the citizen level.

5. The party would therefore nurture business activity – without distinction as to its capitalistic or cooperative nature – both have been proven over time to work, and both would be encouraged.

6. I actually think the government should stay out of the right to life debate as much as possible, so I am modifying the position I originally published on this topic on February 12, 2007. The right to life is too important and sensitive an area to entrust to the government, except with respect to the most obvious protections for those already living. For example, developing fetuses whom mothers are planning to carry to birth should have legal protections equivalent to those afforded the already born. To avoid government over-involvement in this extremely sensitive area, I favour strong permissive policies with respect to obvious life-favouring initiatives. What do I mean? If there are a group of citizens who wish to prevent abortion by promoting adoption, the Utopian Party of Canada might encourage and aid them. Similarly, if another group wishes to enhance the quality of life for the already-living by assisting potential parents to practice better birth control, that is great too. (That is, taking sides on this controversial issue is none of the government’s business!) Let me go even further. The issue in embryonic stem cell research as I understand it (I am not a specialist here) is that fertility enhancement requires the production of multiple embryos whose parents do not plan to give birth to them. If some group were to take action to provide alternative host mothers for these “surplus” embryos, and if the biological parents do not object, this also could be permitted or even aided. But if the biological parents do not want these embryos to be born, and if the biological parents also consent to proceed with stem cell research using these embryos, then that is between the parents and the scientists. There are some issues that are just too sensitive to leave to governments to solve. Excessive government involvement in such issues will almost inevitably make matters worse for everyone concerned. In principle, I prefer leaving morality to the involved individuals, rather than to regulatory bodies, because I believe that citizens acting freely (within reasonable limits) are almost always better problem-solvers than governments. Let me go another step further still. Let’s say a citizen group argues that embryos should have an ombudsman so that their voce can be heard. That is great, but let the citizen action group fund it, not the government. What is the role of the government? To permit and encourage citizen initiatives that are obviously not anti-life and that might in some arguable way enhance life, even in difficult and complex areas. Governments should leave moral decision-making to the citizenry, and occupy themselves with things that they can do better than citizens acting independently, such as developing and maintaining infrastructure and enforcing a code of laws and rights. (Edited: 20 February 07)

7. The party would seriously address issues of the carrying capacity of the earth, and incentives to encourage citizens to regulate both population growth and environmental damage naturally and voluntarily would be considered.

8. All young citizens would engage in two years of modestly reimbursed public service at age 18, not unlike the Swiss (or an extension of the former Katimavik Program), though there would be much freedom of choice as to the form of the service, and in addition to military service, the international component would also include reconstruction and citizen service teams as well as soldiers. By policy, individuals of diverse background from across the country would be grouped together for the explicit purpose to relationship-building. Further, citizens of all ages could volunteer for such service to their country, whether to return at a later point in life, or as an extension to their prior period of duty.

9. It would also be Canadian policy that for every soldier on the battlefield, three Canadians (or more) would be actively involved in reconstruction, citizen services and relationship-building activities in the countries or regions where our military intervened.

10. The criminal justice system would refocus itself from criminal services to victim services, and where possible, convicted individuals who are not dangerous offenders would play a primary role in redressing harms done to other citizens.

11. With respect to criminal prosecution, three questions would be asked: (1) Is this person innocent or guilty – and extensive resources would be available to those charged, based on the principle of the presumption of innocence; (2) Is this person dangerous, destructive and/or determined to re-offend – again, considerable resources would be required; (3) If this person is dangerous, destructive and/or determined, then how can the safety of any and every prior and potential victim be assured – and it is at this point that the balance of resources would begin to flow in the direction of those whose needs are invisible to the public – to prior and potential victims rather than to services to determined antisocial offenders

12. Everybody wants to reform the schools. What would the UPC do? We would try to get out of their way so they can have at it! Let different groups who have different ideas about what is important organize themselves to offer their programs through public schools (through negotiation - yes, public schools would still exist) or though private schools (if they really care that much). There would still be universal standards. Reading, writing and arithmetic still matter, and there would be provincial exams. After all, we'll have to make some effort to keep up with the Japanese and the Chinese, and some Canadians should still write books and practice science. What would my school teach? The three R's for sure, and what else? Long-term planning (how to get from where you are now to where you want to go). Collaboration (how to cooperate with or stay out of the way of others while you're going there). Inner skills (how to get along with the single person you can never escape - yourself!). (Added: 20 February 2007)

13. Issues of public concern which do not submit easily or directly to the profit motive in the world of business would nonetheless be delegated to private enterprises, with the role of government being to provide incentives to cover “start-up costs” until such new initiatives became economically viable or otherwise self-sustaining, for example:

a. The government would act strategically with respect to economic policy, and would take action ahead of rather than in reaction to global trends. At present, this would mean anticipating the coming global alternative currency and commodity boom attributable to the rise of Asia in the post-war “excess liquidity” environment (in my view, Asia's advantaged position derives from the capacity of Asians, through long-range strategic thinking, to capitalize on the capital flow “bubble” originating in the west, whereas the nations of Africa have been largely incapable of mounting an effective response, and the Middle East and Muslim world have been thrown “off balance” by excesses of opportunity).

b. The Canadian government would continue to utilize the income trust structure for the development of energy and mineral resources (an area of concern of particular interest to Canada, both now and historically) and for other business ventures as deemed appropriate.

c. Transportation across the county by all methods would be encouraged, including the twinning of the TransCanada Highway across the length of the country, but also including the fast-tracking of the TransCanada Trail for hikers and other users of non-motorized transportation – both here and abroad (in my view, this would be a potent attractant for international eco-tourism), and we would also rehabilitate the railways and the airways (primarily through regulatory incentives).

d. There would be broad incentives relating to the development of businesses to enhance both environmental quality and quality of life.

e. Considerable subsidies and incentives relating to start-up costs would be available to developers of alternative energy and energy conservation strategies. These would ideally be repayable where possible.

f. In the provinces, a small-scale business incentive program modeled on the Grameen Bank would replace welfare and “make work” programs for those living at the margins of society, including those living in urban and rural areas as well as in the First Nation territories. Everyone, including in particular those with severe disabilities, would receive incentives for working and contributing to the national economy to the greatest of their personal capacity.

g. On a related note, I would eliminate restrictions on the accumulation of personal savings for the poor (our contemporary version of debtors' prison), and replace them with incentives to save. As my calculations have shown, it is realistic to expect that even an impoverished Canadian could accumulate in the multiple millions of dollars in savings through saving and investing early and consistently. Thus it is realistic to expect that at least some of the poor might be able to be self-sustaining in later life through this policy.

h. Taking this idea one step further, we might establish a national investment program for Canadians who are not sophisticated in the world of investment, and this program, established perhaps as a very large (or series of) income trust(s), would target growing industries based on analysis of broad secular trends. This program might then provide some of the incentive funding for the government-mandated programs which I proposed earlier.

i. In the First Nations, homes and property would gradually return to individual ownership, and there would be temporary economic incentives to those who improved their home and property on their own initiative, enabling them to increase the value of their personal as well as their tribal holdings over time.

I could say much more, but this is the real world (not utopia yet!), so that is all for now!

Unresolved Dilemmas for the Politically Correct On Both the Left and the Right

9 February 2007

Much has been written about political correctness, and there is little I need to add to the literature defining the subject.

But I am interested in the psychological problems that are created by political correctness. At heart, the real difficulty with political correctness is that it prevents us from seeing things as they are. The central conundrum with respect to this politically enforced perceptual distortion is not so much that we cannot describe reality accurately, but that we cannot respond to reality morally.

It is well known that derogation of political correctness is a preoccupation of the right, and it is most often those on the political left who are branded with this label. In fact, all ranges of the political spectrum are hobbled by their own variants of political correctness, and the right is no less guilty than the left in this regard.

Why are we as a species prone to political correctness? I suggest that this is because moral choices are inherently painful and complex, and in fact, often agonizing. Therefore, we seek simple formulas to spare ourselves the agony of moral decision-making.

Without further preamble, let me illustrate some of the dilemmas faced by the politically correct on both the left and the right, using examples only.

A DILEMMA FOR THOSE ON THE LEFT

We entirely lack the societal resources to resolve the problem of egregious offenses against the wellbeing of the populace through the procedural maze of the present administrative and court systems. If we do not live within our means (that is, within all of our limits and boundaries) as we act to resolve ethical dilemmas, we will ultimately impoverish and thus incapacitate ourselves socially, financially and morally.

1. We cannot afford to resolve all criminal infractions through our present court and legal system, particularly the most serious as perpetrated by habitual antisocial offenders. It is illogical to devote millions of dollars in societal resources to balancing the rights of the habitual antisocial offender with those of the general public. We all know that some individuals are habitually destructive and dangerous to the wellbeing of all, and the fact that such individuals should be wholly restrained by permanent removal from society is quite obvious to any rational and compassionate observer.

Why then do we agonize over the rights of criminals while abandoning victims to their fate? Our human tendency to deliberate at length over the rights of perpetrators while recoiling from inquiry into the impact of their actions on their victims in my view also derives from a reflexive failure of moral courage of the same type that is at the heart of political correctness in all of its forms.

This particular dilemma is quite simple in its moral and psychological structure. Where punishment of the perpetrator is in question, it is our own direct or indirect action that will result in premeditated harm to this person, making us personally responsible for inflicting punitive sanctions (and therefore injuries) against another, no matter how callous, brutal and remorseless this particular individual may be. While extensive processes exist to enquire into the functional capacity, motivations and psychological functioning of antisocial offenders, we have virtually none to study the experiences, perspectives and agonies of their victims.

In the arena of the politically correct, the harm done to victims is inflicted by the “other” – the criminal whose rights we safeguard – and thus no harm has come to the victim through our personal action (though much may ensue through our subsequent neglect). As personal action weighs more heavily on our conscience than the actions of others, we permit dangerous offenders to return to society while simultaneously erecting few if any safeguards for their prior or potential victims, including those at risk of retribution.

The first step in the permanent exclusion of antisocial offenders from society lies in deciding where to draw the line as to who should and should not be designated for exclusion, and for how long – and so we erect complex, unwieldy, self-maintaining and correspondingly unreliable mechanisms to shelter ourselves from this distasteful task.

But underlying this first moral dilemma, difficult though it may be, is another dilemma far more difficult still, and that is the decision as to how our finite societal resources should be divided. Due to our distaste for judgement, we spare no expense in the allocation of money and manpower to evaluate the known perpetrators of offensive crimes, first through complex and often multiple trial proceedings, typically spanning many years and sometimes costing in the millions of dollars, and then through the ongoing monitoring and review of the perpetrator’s progress within the criminal justice system, all of this possibly extending for the remaining lifespan of the evildoer.

In the midst of our extravagant provision of lifetime services to the brutal and callous (and this is at the heart of the second and greater dilemma) we learn almost nothing, either publicly or systemically, of the impact of antisocial crime on its many victims and survivors. We have no parallel system of resources which monitors the safety or the ongoing mental or physical health of the victims of vicious criminal acts. Similarly, our victim services processes are private, whereas criminal proceedings are public. Therefore, victims suffer in silence, shielded from public view, and we, as members of the public, are sheltered from the torment of personal responsibility.

My professional work often brings me into contact with victims of violent and antisocial crimes, and in my experience, the decisions and actions of victims are shaped to a greater degree by their fear of perpetrators, whom they view as dangerous, powerful and likely to return unhampered to society, than by their confidence in the criminal justice system, which they almost invariably view as vacillating, weak, unpredictable, ineffective, and incoherent. As many know, it is not unusual for perpetrators to gloat in their impunity. In fact, through the eyes of the victim, the criminal justice system very frequently appears to be directly aligned with and empowering to perpetrators, and so aligned against and disempowering to victims.

The politically correct person on the left refuses to make the costly decisions which would acknowledge initially that violent and antisocial offenders require permanent exclusion from society, and then that societal resources must be directed preferentially to victims, and this at the expense of inhumane, remorseless and habitual offenders.

2. We cannot afford to hold the free enterprise system itself hostage to the infinite moral dilemmas of the general populace by extracting massive cash settlements to redress the real or imagined injuries of the aggrieved through class action (tort) lawsuits for wrongs that in their very essence reflect the inescapable risks and hazards of our mortal nature. The fundamental dilemma is that life is inherently risky and ultimately fatal, and that businesses which provide products to meet our needs cannot possibly remove all risk from living by selling guaranteed harm-free products.

a. The politically correct person on the left holds tobacco companies culpable for the sale of tobacco and its resultant harms, whereas society, through its legal system, makes tobacco a permitted – even a promoted – substance with the full sanction of the very governments which extract legal penalties from its purveyors.

b. Similarly, asbestos was valued by society as a whole for its insulating and fire retardant properties. It was only with the advance of medical knowledge that the hazards of asbestos became known. The harms caused by asbestos are in no way the responsibility of those who mined, processed and sold it to members of a society who desired it for its useful properties.

c. It now requires in many cases hundreds of millions of dollars in funding to develop and test new pharmaceutical products over periods of decades in order to address the illnesses and frailties to which we as humans are prone. Extensive evaluation is required to assure safety, and this is rational. But should unintended side effects occur following such development and testing, we punish the pharmaceutical companies for their efforts, rather than acknowledging that not all consequences of a medication’s use can possibly ever be comprehended or foreseen. For failing to exercise such mandated infinite oversight, we then punish pharmaceutical companies with massive lawsuits, rather than acknowledging that no set of safeguards can protect us against all conceivable harms and unintended consequences of the use of pharmaceutical products. In response, the pharmaceutical companies avoid risk, developing medications to treat only a narrow range of illnesses, and the prohibitive costs of drug development result in independent companies developing drugs in most (fortunately not all) cases to treat only a minute fraction of the spectrum of the illnesses of the world’s richest people – those who can afford to pay the massive risk premium required to fund contemporary pharmaceutical research. As has been well-established, even aspirin can be extremely dangerous in certain delineated circumstances (I personally have an adverse response to this commonly-used medicine). It is only through the intervention of charitable foundations which are willing to undertake the staggering costs and associated liabilities that any treatments at all can be developed to alleviate the suffering of the world’s impoverished majorities. Through our aversion to risk and uncertainty, we have transferred responsibility for the ineluctable hazards of living from ourselves both as individuals and as a society to the pharmaceutical industry, with the result that innovators are excoriated and presumed guilty for the inherent liabilities of our mortal nature.

The politically correct person on the left is unable to acknowledge that life itself is hazardous to the point of certain death for all. These individuals seek to establish a way of life without risk in an imagined utopia of accountability that is sought through endless prosecution of the purveyors of the products and services that in our fickle nature were once desired, and now spurned due to changes in our understanding or perception of the balance of risk and benefit in their use. What the politically correct have created is in fact a suffocating and blatantly exploitative regulatory framework (within which accountability has become an infinitely displaced end) that quashes creativity and affixes so many penalties upon innovation and productivity that our capacity to continue to create the goods and services necessary to sustain and potentially enhance the quality of our lives has become critically compromised, with far greater costs to human wellbeing and freedom than their regulatory efforts could possibly ever forestall.

A DILEMMA FOR THOSE ON THE RIGHT

We inhabit a moral universe fraught with complexity. Multiple and ultimately competing perspectives that we often have no right or ultimate capacity to modify place demands upon us and dominate our lives. The ultimate dilemma is not one of right or wrong, but of engagement or escape. Ethical living demands engagement with the full spectrum of human experience.

1. At its core, the struggle to survive is not a tenet of political ideology (as in “Social Darwinism”) but a biological reality. Across the 4.5 billion year history of our planet, a mere atom in a galaxy which in turn is a speck in a cosmic web of galaxies and galactic clusters, multitudes of species have arisen and passed away, and multitudes more will do so, including at some inescapable point our own. In most species, the great majority of individuals do not survive to maturity. Across the span of the history of life on earth, most species themselves do not survive, as they are displaced or die away due to changing environmental circumstances (and all of this is in the context of the drama that Darwin referred to as natural selection). Over most of our own history as a species, it was unusual for human individuals to survive through to maturity and old age prior to relatively recent times. I am not at all suggesting that the preservation of life is not a virtue, and in fact I hold to this principle quite dearly. But I do submit that it is in the very nature of life itself that only a miniscule fraction of germ cells survive to become embryos, and that there are infinite hazards faced by embryos on their journey to becoming human individuals.

In my essay on the movie Vera Drake, I have dealt already with what I regard as the inherently unsolvable moral dilemma of abortion. Here I would like to establish a quite similar point, that the competing rights of the human embryo and of the developing or mature human who might benefit by the fruits of embryonic stem cell research is not at heart a moral problem, but a biological one. That is, it is in the nature of the very struggle of life that what is beneficial for one individual will at some point harm another (whether of the same or different species), and vice versa. Here I can only assert that embryos are known to me to have neither greater nor lesser rights than mature individuals, and that the death of embryos which were never intended by their parents to enter into human form will generate certain benefits to individuals with genetically-based illnesses that might yield to the fruits of embryonic stem cell research. Conversely, to withhold such benefits out of respect for embryos whose parents never intended for them to breathe life seems a patently illogical, counterproductive and ideologically-based stance to take, where no benefit can in fact derive to the embryo, and clear harm will result to those with genetically-based illnesses if the research does not proceed apace.

2. In an entirely different sphere, North American conservatives, and here I refer predominantly but not exclusively to those in the United States, have embroiled the globe in a series of ill-considered ideologically-motivated military adventures in which the enormous but finite resources of the United States are pitted against those of far less wealthy and powerful, but far more determined, adversaries, who perceive American incursion to be an insult to their sovereignty and freedom. Little investigation is required to establish that the actions of the United States have been incoherent to the point of apparent dysfunction.

Let me clarify at the outset that I am not approaching this challenge to the political right from the ideological left, and I hope this will become evident in my subsequent discussion.

Historically, the United States seems to have careened off course shortly following its rise to the position of dominant world power at the close of World War II. With the rise of anti-communism, the United States arrogated to itself the right to intervene seditiously in the affairs of state of governments around the world, and it is well-known that the United States initiated actions to destabilize the governments of such countries as Chile, Nicaragua, Iran, Iraq and Afghanistan, as well as to oppose the will of the vast majority of the citizens of Vietnam in America’s greatest debacle of the 20th century. Thousands, if not hundreds of thousands, suffered and died as a result of America’s ill-considered actions.

In my own view, the disruptive spilt in the American psyche must be traced to its roots, though I am of course uncertain as to its ultimate source. My intuition suggests to me that a predominant factor in the genesis of what Richard Hofstadter referred to as the “paranoid style” in American politics (originally a 1964 essay in Harper’s) is the fact that many early American settlers were members of persecuted minority groups, both religious and ethnic. Thus their traumatic experiences of sustained persecutions, many unimaginably severe, would seem to have been transmitted intergenerationally to our present era. Yet many Americans are also open, fair-minded, selfless, charitable and ultimately supremely balanced persons, and this achievement can be attributed in large part to the country’s dearly-attained democratic and pluralistic innovations and traditions. The United States therefore conducts itself in a dissociative manner when it behaves internationally, and this is baffling to others in the far-flung corners of the globe where Americans almost invariably mis-step.

Another tragic mis-step, of course, has been taken recently in Iraq (in my view, the Afghanistan combat is a quite different and far more complex intervention for many reasons). So what has the United States done wrong in this case? Well, we must be historical. To begin, the United States equipped, financed, trained and then abandoned its historic allies but ultimate enemies in the mountains of Afghanistan in its ill-conceived anti-Soviet interventions in that country now decades ago. With shifting alliances which parallel and perhaps exceed those of Orwell’s 1984, the United States has been with and against Iran and Iraq, and against and with and now in an ambiguous relationship with the former Soviet bloc countries.

With ideological fervour, the United States has in fact fought on both sides of many of the ethnic, cultural, religious and ideological fissures which rend the Muslim world through the Middle East, Asia and North Africa. And what has the United States encountered there but a mirror reflection of itself, a similarly dissociative cultural and political environment also shaped by centuries of persecution and ridden by paranoia? Faced with an adversary whose psychological conflicts mirror its own, the United States has responded incoherently, unable to transmit its deeply cherished democratic and pluralistic ideals to a population that in at least some respects admires and appreciates these same ideals (almost certainly the democratic more than the pluralistic), due to their being enshrouded in a paranoid overlay which with seemingly unerring accuracy perverts and distorts almost every American foreign intervention, whether well-intended or otherwise (in my view, there has been much of both).

Let me now explain why my present criticism of the United States is not drawn from the ideological roots of the left. As an American citizen myself, I believe that the United States has, in its peak accomplishments, attained to a series of principles of immeasurable value. Among these I include pluralism, free speech, due process, the rule of law, the right to hold private property and to vote, and a deeply held belief in the irreplaceable benefits of economic freedom. In almost all cases, America’s adversaries have been less advanced in many if not all of these critically important dimensions.

However, the United States has proven strikingly ineffective in transmitting these values and ideals to the countries in whose internal affairs it has intervened, and one must at this point ask why a people driven by such noble ideals have proven unable to deliver them to others by means of military force. Let me also submit that in the question lies most of the all-too-obvious answer, and that is that freedom cannot, by its inherent nature, be imposed. It must be invited in. And it is delicate work to create the receptive psychological climate within which the process of giving birth to freedom can occur. In my view, the “military-industrial” megalith of United States power is an all-too-blunt instrument to accomplish this highly refined objective in most circumstances. In fact, and it has often been demonstrated, Americans possess the skills to win others over through precept and example, but America refrains from this method when its leaders (and the citizens who support them) are driven by fear.

Unlike many who criticize America from the left, I am deeply troubled by the evils that I perceive in the world of Islamic extremism, and I am concerned that much of the Muslim world is rapidly slipping into a new dark age, and this seems to parallel, but lag by several centuries, the developments that swept Europe almost a millennium ago (and that led in great part to the persecutory history of our current adversaries in the Muslim world through the crusades). While Islam boasts a proud history of intellectual, cultural, social, scientific and spiritual achievement, much of that history is now being erased by a wave of jihadist extremism against which the evils I have just described in the United States pale in comparison.

In my view, there is no greater evil than terrorism, which strikes intentionally at the innocent in order to inflame them to a level of fear and hate which mirrors that of the perpetrators of this most heinous of all offenses against humanity. And while the United States has selfishly blundered and intruded, staggering about both thoughtlessly and blindly, and thereby engendered needless suffering for untold millions through ill-conceived military-industrial activism, the adversary it has recently encountered is more evil still. It is thus one of the paradoxical sins of the United States that through confused and naïve action (driven by what Hofstadter described as the dual burden inflicted by the addition of paranoid fantasies), the United States has contributed to the unleashing of an already existing evil against which its own pales in comparison – and I think this needs to be explicitly stated.

That is, and I wish to be quite clear, the evil of terrorism greatly exceeds the evil of imperialism. The one is far more repugnant than the other, though, in our present age, both must by all means and in all circumstances be avoided. There is no place for either terrorism or imperialism in our modern world, and those who practice them must be held accountable to desist by the leaders of the world community in all of its quarters. The freedom which we enjoy in the west is a precious treasure to be guarded, but also not to be squandered, and I wish to argue that that the cost is far too great to persist in our ill-conceived activism.

Islamic extremism poses many dilemmas to our society, and the arming of Iran and the rise of the jihadists are but the tip of the iceberg in a vast region of the world where pluralism is rejected, and minorities, including in particular many Christians, are persecuted. There is no easy response, but I do maintain that we must cease using blunt instruments, and act first by understanding and then accurately estimating our enemy prior to engaging him. We must respond strategically rather than in a haze of fear (or pride).

At a minimum, we should consider how to act to stop feeding the sinister processes which breed new terrorists by the hundreds each day, then to isolate the most extreme and disruptive of the jihadists, simultaneously to provide meaningful protection to minorities suffering under persecution by Islamic extremists, and then – and only then – to confront militarily those whose brutal designs can by no other means be resisted.

In summary, then, my criticism of the political correctness of the right is that the web of frightening fantasies must be swept away, enabling a clearer vision of the actual risks and opportunities that lie ahead. We must acknowledge that while there exists an evil in the world far greater than that which we ourselves have perpetrated, our own excessive (but ultimately inadequate) use of power and our self-absorbed and reactive interventionism appear in fact to be feeding the very evil which we seek to restrain. We must still combat our own evil first and more directly so that we can see clearly to combat the evil which clouds the vision of our Islamic neighbours. It is this supremely uncomfortable fact to which the political right must either accede or succumb.

The politically correct person on the right is able to acknowledge the existence of evil in the world, and also to recognize the requirement of bravery to confront it. However, in my view, this person has become entrapped by unwillingness to acknowledge the complex interplay of multiple viewpoints, and so denies his or her own participation in the origination of our world’s inevitable evils. Thus, the politically correct individuals who inhabit the political right respond reflexively rather than strategically to complex moral issues, disregarding and thereby alienating others, leaving them standing incoherent in response to their own isolation in a world where black-and-white characterizations of problems create imagined solutions that are unworkable for those with needs or viewpoints different than their own.

CONCLUSION

The purpose of the present essay is not to “answer” the questions I have posed, but to portray clearly how certain popularly chosen paths to their remediation are in fact inherently unworkable, and thus must be abandoned, to be replaced with new answers based on new ways of thinking which have not yet in fact been generated. It is my hope that in the resiliency of our human nature, and particularly in our ability to communicate honestly with each other at deep rather than superficial levels, the answers to these dilemmas may reside.
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For Investors, a Time of Greater Than Expected Change Is at Hand....

24 November 2006

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship." (Alexander Tyler)

"The American Republic will endure, until politicians realize they can bribe the people with their own money." (Alexis de Tocqueville)

“'When I use a word,' Humpty Dumpty said, in a rather scornful tone,' it means just what I choose it to mean, neither more nor less.' 'The question is,' said Alice, 'whether you can make words mean so many different things.' 'The question is,' said Humpty Dumpty, 'which is to be master - that's all.'” (Lewis Carroll)

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SIGN A PETITION REQUESTING THE HARPER GOVERNMENT TO TAKE BACK ITS MOVE TO TAX ALL INCOME TRUSTS

In recent discussions with friends, I have been noting considerable confusion as to the meaning of recent economic trends. I last addressed this issue in December 2005, in my post entitled “A Three Stage Gold Bull Market?”

The issue has become timely again for several reasons.

Most importantly, the precious metals are building strength for another potentially powerful ascent. Thus, there is a concern as to timing for individuals who feel insecure with the volatile gold and precious metals markets.

In the background, many conflicting messages serve to confuse ordinary people as to what is actually taking place, and particularly as to what is accounting for the strength in precious metals since the period of the 1999-2001 lows in this market.

I commented previously that Fortune Magazine featured gold on its December 2005 cover as a recommended investment for 2006. That has indeed proved to be sage advice, though gold’s strongest advance continued only through mid-May 2006, and had retreated to its December 2005 levels by June 2006, which likely discouraged investors who acted on Fortune’s advice without following the precious metals market trends more closely.

Of course, the present year has seen nominal record prices for the Dow Jones Industrial Average, and this has very much overshadowed gold’s stealthy 5-year advance. In fact, if one charts the value of the Dow against the value of gold, the Dow Jones Industrial Average has been in an unremitting downtrend since 1999, and this is a secular (very long-term) trend that is likely to continue for at least another decade (I suspect longer, though I claim no ability to predict the future). By May 2006, the Dow had in fact lost 65% of its value against gold, and my expectation is that this adverse trend will advance further over the next decade.

My point with respect to the above is that the Dow's advance has been a regular news item in the global marketplace, but its disastrous 65% collapse against the dollar value of gold has been highlighted in only the narrowest of circles.

Let me proffer another example.

There is broad discussion about the dramatic gains in the North American real estate market (which is in fact a nearly-global phenomenon). Most individuals I speak with will acknowledge that the real estate market has now “topped,” but this has not deterred most people from thinking of real estate as a “safe” or “desirable” investment.

It is well known that North Americans maintain most of their net worth in the value of their homes. In itself, this is not at all a bad thing. However, the sustained inflation of the global money supply in virtually all jurisdictions of the world has resulted in irresponsible levels of speculation in this normally conservative market since the 2001-02 recession. As a result, this market, which is almost universally perceived as conservative and safe has in fact become treacherous, and I do not believe that this development is widely appreciated.

As with all markets, the real estate market is driven by the ineluctable law of supply and demand. And the recent speculative froth in this market will inevitably create much more serious damage than most North Americans presently appreciate. In practical terms, this will mean either that real estate values will fall for many years to lower levels than are presently imagined by most home owners (let alone real estate speculators), or that real estate prices will stabilize against the background of a currency that is collapsing in terms of its purchasing power.

Neither of the above-cited developments is desirable for those who wish to protect or add to the value of their savings.

It is here that I must touch on the increasingly confiscatory mood of governments in the present environment.

Without overstating the significance of the first two quotations with which I introduced the present post, I wish to posit that our governments are in fact presently at a time of crisis. Unlike the “uncovered stories” of the real and dramatic decline of the Dow Jones Industrial Average against the value of gold and the recent and highly dangerous secular disruption of the global real estate market by the inflow of a tsunami of speculative funds, this story has in fact received considerable media attention.

The broad issues are understood by most. The “pig in the python” baby boom generation is approaching its retirement years, and there will be relatively few workers engaging in productive activity to support the entitlements due to the present massive cohort of retirees. Estimates of social insurance (social security) and health care obligations soar into the unimaginable trillions of dollars in both the United States and Canada, as well as in all the nations of the west and the developed east (primarily Japan).

Most commentators portray the Canadian government as in a preferable situation vis-à-vis the US government. Unfortunately, the story is not so simple as that, as in fact all governments of developed nations are presently facing a similar crisis, though the United States is in particularly dire circumstances due to its recently-emerging massive dependence upon foreign investment to stabilize the role of the United States dollar as the world’s reserve currency (a function that I am not certain the US dollar will be able to maintain through the anticipated crisis).

Governments are thus engaged in preparations to accomplish the following:

1. Reduction of obligations to citizens, particularly the present cohort of soon-to-be-retiring baby boomers.
2. Development of new tax schemes to assure the filling of the coffers of state treasuries at all levels.
3. Economic sleight of hand intended to diminish the real value of existing and anticipated government debt – without which repayment of present and anticipated obligations will clearly prove impossible.

Our family has been adversely impacted by the surprise Halloween-Day 2006 decision of the Canadian government to remove the favourable tax treatment until recently accorded to oil and natural gas income trusts. These uniquely Canadian business ventures were originally accorded favourable tax treatment to promote the development of stable, marginal and/or declining oil and natural gas wells, located primarily in western Canada.

Under the Canadian energy income trust scheme, government tax revenues were to derive from the investment income of holders of shares in these trusts, rather than through taxes on the profits of the trusts themselves. This quite foresightful government policy measure promoted a massive inflow of private investment funds into the Canadian oil and natural gas sector, from which investors, citizens broadly, and the government have all clearly benefited in a classic win-win arrangement.

The original Canadian legislation permitted the use of the same income trust structure for unrelated businesses having entirely different characteristics, and in order to restrain an accelerating trend of conversion of major Canadian businesses to the income trust structure, the conservative government of Stephen Harper and Jim Flaherty acted to remove the tax protection of all income trusts in Canada on Halloween Day 2006, and this in spite of an explicit campaign promise not to do so.

Here, I do not wish to discuss the specific reasoning behind and implications of this sweeping Canadian government move, though I strongly oppose the policy of the Stephen Harper government in this case, particularly because this confiscatory move punishes those foresightful (and for the most part “ordinary”) Canadian citizens who have chosen to save and invest in Canadian business infrastructure at the expense of those who have not.

The Harper government’s move is particularly worthy of condemnation due to its affording no warning and no recourse to those who have undertaken such investment on a basis of trust that the Harper government would hold consistent with its promise to honour the specific tax policies which were in effect at the time that their original investments were undertaken. (Sign a petition here.)

Of course, government confiscation of the private investments of its citizens is by no means new in history. In most all cases, history teaches us that those citizens who have taken initiative to set aside a portion of their income on a regular basis are those most likely to be victimized by increasingly desperate governments, as there is much less to be gained by robbing those citizens who do not save for future needs.

Again, the primary point I wish to illustrate here, despite my strong feelings about this particular issue, is that in fact all governments of developed nations are in fact in quite dire straits, and the severity of the problem is managed through policies designed to appease the public while at the same time undermining the value of all currencies, so that the payment of present and future government debts and obligations can be made in currencies of declining value.

Since our elected governments represent us as citizens through our own choices made during the course of the electoral process, what is of course happening is that we are in fact choosing to select those leaders who are most willing to preserve this ongoing deception, and thereby protect us from confronting ourselves with respect to this imprudent practice.

What do I mean by the term “deception”?

I have in fact selected this word thoughtfully.

I am not a “conspiracy theorist,” except in the broadest sense. There is no secret cabal who are plotting to rob citizens of their hard-earned savings. The actual process is much more mundane. We simply want to “have it all.” That is, we wish our governments to provide us with the services we desire, and to avoid paying the costs that such programs entail. It is therefore convenient for our elected leaders to suggest to us that they are:

1. distributing the tax burden evenly and fairly,
2. guarding against the wealth-eroding impacts of inflation, and
3. representing our collective interests.

The fundamental problem is that a shared deception is necessary in order for us to perpetuate our present practice, which is to manage government costs and to forestall inevitable economic sources of restraint primarily by inflating the supply of money, rather than by taxing citizens in more obvious ways.

I have written previously about the conundrum of perpetual inflation of the money supply, with resultant excess liquidity, which ultimately disrupts and distorts all markets and erodes the value of all currencies.

That the policy of inflating the money supply alone does not work is evidenced by such recent developments as:

1. The Harper government’s decision in Canada to “raid the treasury” of the income trust sector (rather than taxing citizens by more apparent means).
2. The Bush government’s practice in the United States of continually redefining “inflation” through the cost of living index so as to explain away the fact that virtually all items and services save imported goods are spiralling dramatically upwards in cost, thereby eroding the purchasing power of the paycheques of salaried workers and citizens on fixed incomes.
3. The practice of essentially all governments to state publicly that they are “defending their currencies” while in practice literally every global currency is being systematically shredded – and at an accelerating pace due to the looming crisis that I have described earlier.
4. The international value of the US dollar has recently declined below important technical support levels, creating a timely buying opportunity in the gold market (for reasons explained below).

Again, the conspiracy I am describing is merely one of ignorance, or if you will, of consensual mass deception. There is no war room where conspirators are gathering to plot out the dangerous and potentially disastrous series of future events that I have described on this blog. What we are confronting is merely a set of shared deceptions in which, for the most part, all of us choose to participate, in order to elude, for as long as possible, the inevitable lesson that at the end of the evening, the piper must be paid.

In the midst of this whirlwind of rationalization and consensual “spin,” there remains one uncomfortable truth teller, and that is – as always before in history – the precious metal gold, which since time immemorial has served humans as the currency of last resort.

The value assigned to gold, as with all items of value, rests on the principle of supply and demand. If the official currencies of all the governments of the world can be printed (or digitized if you prefer) at will, then a currency of lasting value must not be subject to ready manufacture, and that remains, as always before, the case for gold, which is difficult to find and expensive to produce – quite unlike, for example, our proliferating US and Canadian dollars, European Euros, Japanese Yen and Chinese Renminbi.

While supply ebbs and flows at a gradual pace, human sentiment shifts in a much more rapid timeframe, and this drives the dynamics of demand.

Let me state here, quite publicly, that at five years into gold’s bull market, we remain at the earliest stages of the long-term gradually accumulating demand for gold. Based on psychological factors, which are not here possible to predict, the demand for gold (and in fact, all precious metals, also including silver, platinum, palladium, etc.) will certainly continue to ebb and flow. It will not be long before gold surpasses its nominal $800 peak of 1980. This will spark increased public interest, and probably confirm the second stage of gold’s probable three-stage bull market (or at least the end of its first stage).

In fact, there will be many exhilarating “ups” and an equivalent number of harrowing “downs” in the gold market of the future, but combined technical and fundamental analysis make clear that there is little if any global dynamic in place to halt the move of the price of gold into the several thousands of US dollars over the next decade or perhaps longer.

Let me warn the uninitiated, however, that somewhere along the way, a significant retreat in the price of gold (called a primary correction) will likely follow, and the value of gold might seem to collapse for an extended period – perhaps for a year of longer – and this will be due not to any change in fundamentals, but to the variable nature of human psychology.

It is the nature of bull markets to be difficult for those who lack rigorous commitment to them, and our innate psychological processes will consistently drive us to buy when the price is high (because we are given confidence by a favourable trend) and to sell when the price is low (as we fear further losses more greatly than we desire anticipated future gains).

Thus the gold bull market is more like a formidable beast than a gentle steed, and the likening of burgeoning markets to the aggressive and untameable bull is in fact most apt. Bull markets are not in fact friendly at all – they are formidable, intimidating and often harrowing.

Why then do I continue to recommend that citizens consider investing in such a volatile and unpredictable sector?

My reasoning is predicated on the contrast of the precious metals market to literally every one of its alternatives.

My primary concern is that our seemingly safe and familiar everyday reality (with, for example, its “rising” Dow Jones Industrial Average, its “secure and dependable” real estate market and even its burgeoning global commodities sector) is in fact the far more dangerous and deceptive place through which to venture when one is seeking a safe haven for one’s hard-earned savings.

Do not, therefore, seek the safety of conventional wisdom by placing your savings in eroding assets defined in terms of inflation-prone dollars, but instead ride the bucking and obstreperous bull of the precious metals market to find relative safety and security – paradoxical though this advice may seem.

If you have questions about when to buy or sell, there are many advisors far wiser than myself who can guide you in such decision-making. At present, I recommend three advisors in particular as your helpers and guides: the Aden sisters based in Costa Rica, Adam Hamilton in Colorado and Bill Fleckenstein in Washington State – as over the past several years, I have found them to be speakers of truth, possessors of insight, and purveyors of wisdom in a bustling global marketplace where truth is typically the last guest to arrive at the table.

Save $5.00 a Day

27 December 2005

For many years now, I have been challenging young people to begin saving $5.00 per day at age 16. I point out to them that with 10% annual interest over 50 years, they would then be in a position to retire at age 65 with approximately 2-1/2 million dollars saved.

For the many young people who spend a significant portion of their income on tobacco, alcohol, street drugs, lottery tickets, video games or junk food, I point out that the necessary $5.00 per day can easily be diverted from these distractions towards a much more desirable long-term end. This is also a useful challenge for those who desire to become “millionaires” quickly – they can in fact quite realistically achieve their goal if they are willing to do it more slowly.

I also challenge young people that their ability to save has little to do even with their employment status, as a person temporarily on “welfare” can easily spend $5.00 per day on cigarettes or other unhealthy or unwise lifestyle choices. That is, even a person receiving social assistance can become a millionaire by saving $5.00 per day (though there is the small problem of means testing in many jurisdictions, which would apply as the person’s savings accumulate - therefore I recommend employment, and not welfare, as the best long-term survival strategy).

The point I have made over and over again is that most all of us have routine items on which we spend money regularly that are replaceable with savings. While my most-used example is cigarette smoking, for some it is snack food or junk food. For others, it might be gasoline powered transportation, or an expenditure on an area of interest that promotes passivity - say television subscriptions.

If we were to save a consistent portion of our discretionary income rather than spend it, and compound it with dividend payments as are available on many widely available investments, the payoff of the investment can rapidly become self-reinforcing.

For example, my wife has been investing in Canadian oil and gas income trusts for several years. Due to good fortune in timing in this case, her investment has so far more than doubled over the past 3-4 years (despite the Harper government's recent and regressive taxation moves), and she is already well on her way to becoming a millionaire. That is exceptional, but it illustrates the kind of possibilities that are available. (Disclaimer: Neither she nor I are "there" yet, but we are both advancing steadily towards that goal with a clear savings plan.)

For a very conservative investor today, I suggest considering regular purchases of gold, as are available through a Kitco pooled bullion account. This alternative and most secure form of money has the potential of appreciating considerably over the next decade or more.

I strongly advise that long term investors choose secure and conservative investment vehicles which are right for the times. Therefore, some investment acumen is indicated, as no single investment is a good choice at all times. All investors must do their own "due diligence," meaning that they should always invest as they see fit, and never simply as they are advised by another.

Therefore, related to my basic admonition to save, I strongly urge that conservative investing skills be taught in our schools, and also be passed on from parents to their children.

At a minimum, investors should be aware of broad (secular) cycles in various asset classes, and attune themselves to the asset classes that are presently undervalued, and therefore have reasonable prospects of attaining fuller valuation based on fundamental considerations over the passage of time.

So, whoever you are, and whatever your life circumstances, I challenge you to set aside some portion of your income for long-term investment. $5.00 a day is enough to make millionaires of many. $10.00 or $15.00 a day of course make possible considerably greater long-term accumulation.

Is it then true that virtually anyone who desires to become a millionaire can do so? I would maintain that the answer is in fact a resounding “yes.”

Of course, there are clear exceptions to the above rule, as many individuals have little or no access to disposable income of any kind. But for the great majority of North Americans, the assertion that anyone who chooses to can become a millionaire is absolutely and unequivocally true.

That is, the accumulation of wealth is far more a matter of planfulness and strategy than it is of good fortune or higher income. What to do? If all other plans fail, save $5.00 a day! Let the rest follow from that….

The Age of Robotics

27 December 2005

I think most of us have not yet realized that the age of robotics is here.

Probably we are all aware that we can now program a robotic vacuum cleaner to clean our floor (we have three at this point!). The role of the vacuum cleaner in early robotics was anticipated by Robert Heinlein in his classic novel, The Door into Summer.

However, have you stopped to consider that the car you are presently driving may be a robot? We now have cars that automatically regulate temperature, speed, braking, loss of traction, communication with the outside world, navigation, and a variety of other electronically and cybernetically controlled functions.

We are there. The robots are here.

So what do we want robots to do?

As I have an ankle injury, almost 2 years old, my first thought is that I want a robot that will stretch, bend, massage and otherwise work my ankles to increase their flexibility and strength, and thus help me run more safely and effectively down the road as a jogger. (I promise I won't stop doing my physiotherapy exercises!)

What are your robotic ideas?

Please let me know!