July 15, 2011




The problems with most systems are the way they force us all into boxes of limited choices. A good example is the postal system. For years we were forced by law to deal only with this government created monopoly. If we wanted to mail something, we were obligated, regardless of cost, to jump through the system’s hoops. Attempts to legislate it out of existence were considered the efforts of radicals and extremists. Today, the postal system has mutated into a government institution, and a monument to the "virtues" of government regulated services.



However, the market is replacing this antiquated institution with a modern version of mail delivery. E-mail, UPS, and Fed Ex, are all taking over mail delivery at substantially reduced costs. It now costs me nothing to pay bills or send letters that the government wants 44 cents to deliver. And what do I get for 44 cents? “First Class” translates as snail mail! No matter how much they raise the cost of their services, the US Postal Service is near bankruptcy, and will be forced to ask for a government bail out very soon. The fact is, the USPS is obsolete. And other similar "systems" may also soon go the way of the post office.  


Public Education


The education system is yet another tribute to government incompetence. Prior to 1980 schools were run by states. Yes, these were also systems, but they differed from state to state and at least had some semblance of competition. After the Federal Government created its Department of Education—student scores fell as teacher’s pay soared. This system boasts that it has employed thousands of new teachers. It is easy to have full employment when firing an employee is illegal. Today we have an exodus away from the public school system, and a mad dash toward private schools, religious schools, for profit schools, and home schooling. Public education is another system that is quickly becoming obsolete.




A new healthcare system was voted in last year. But what does a government healthcare system look like? For an example, look at the carefully regulated prescription drug system. You wait in a long line before stepping up to a window and asking for your prescription. The person on the other side of the window gives you a bag and asks for your money. They can’t be bothered to tell you what medication is in the bag, what quantity or dosage you should take, or even how much you are paying per prescription. Just take the bag and pay.


While in the drugstore, you decide to buy some over the counter cough syrup. Now this is free market medicine! Cough syrup has its own section clearly delineated by a large sign. There is a wall of cough syrup 16 feet long and six feet high. Choices! Would you like night-time cough syrup or day-time? And if a liquid isn’t convenient, there are pills and lozenges of all flavors. Some have caffeine others do not. Even the quantities are varied, and prices range from high to low. If you aren’t satisfied with the one you buy, the manufacturer knows you have plenty of competitors to choose from next time. This is the difference between a government regulated system of healthcare and the unregulated free market system.


Our health system is about to change drastically. Unfortunately it is about to become almost totally government controlled. The inevitable result will be a system that is even more rigid and provides fewer choices, and ultimately another system doomed to fail.




Back before the Federal Reserve was created, we did not have a banking system. We were on the gold standard and national banks were few and far between. Instead banks were owned by private citizens. They were businesses. America had a banking industry. Some of these independent banks were successful, some not. They were nationalized in 1913 and brought under what we now call the Federal Reserve System.


Today, the Federal Reserve System is a formal, regulated institution; where all banks are required to follow prescribed rules. Under this system, which is less than 100 years old, we have seen bank runs, a great depression, booms and busts, and the monetary unit under its care depreciate 97%. Is it any wonder the world is running back to gold? The Federal Reserve System is being bypassed by individuals, businesses, and institutions who seek a more dependable medium of exchange.


All Systems Down


Government systems, for the most part don't work. They are cumbersome, and refuse to change and adapt. Like industries, the systems themselves become obsolete. The difference being that while industry is forced to either change or die, government systems are subsidized and institutionalized, before obsolescence. This is why they think they are immune to competition, and this is also their inevitable downfall. Without competition we’d have a stagnant economy. Competition ensures efficiency and change. If you lack that flexibility, you fail as a business. The postal system, the healthcare system, even the Federal Reserve System, and the public education system, are all dead men walking. The market is making an end-run around them, and is in the process of replacing them as we speak.
If the horse and buggy industry had been run by the government, it would probably still exist. Its unionized workers could not be fired, and their pensions could not be reduced. As Ronald Reagan put it, "The closest thing to immortality is a government program."
 Yet, in today's technological world, every system, and institution is under attack. Dictators are being deposed, mediums of exchange are being re-invented, mail is being delivered not because of the post office, but despite it, and more children are being educated outside government schools.
When government says they want to “invest in the future” what they are really saying is that they want to spend even more money on its "systems." They believe these rigid systems are somehow immune from the real world. Their “New World” is one with more government controlled industries, more government regulated industries, and more government directed industries. This is how our present government sees us "winning the future.”
What they fail to understand is that the market driven new world is passing them by. It is government that is going broke—not the economy. It is the public sector that is being dismantled worldwide—not the private sector. And it is government systems being ignored in favor of private enterprise. The future will be won—but not by government.

Market Update:


On Monday Copper Fox issued a disappointing report and the stock fell out of bed. Fortunately I repurchased the stock for less than I previously sold it for, so the loss was small, but it still smarts when you get whacked by a bad report.


Ever since its recent dissapointment, RBY continues to fall to new lows. I decided to pick it up again for a possible bounce. CDE has moved up smartly this week. It is interesting that as gold has made new highs, resource stocks are substantially below their previous highs. This divergence will either be remedied, or is an indication of the end of the bull market for resource stocks. This is why I have placed close stops on most of my positions.


I had the opportunity to stop by the Freedom Fest being held in Las Vegas this week. Many of the attendees, including Don Luskin expressed the same concern over the lack of movement in resource stocks compared to the metals themselves. After chalking up a 100% gain in my portfolio since the first of the year, I remain cautious, and a little skeptical of this rally.


While it is a pleasant surprise, I will say to you what I said to Don Luskin: I do not listen to anyone, including myself, when it comes to the market. I listen to only the market itself. The market is acting a little flakey, and I have no intention of losing back what I have just earned. I would rather not make a little, than lose a lot any day of the week.


We will see what next week brings.



Cash and cash equivalents, CXS, MFA, & TWO - (Average yields are about 12%)



Verde Potash - Stop 5.50



CDE - Stop 23.90



Aurizon - Stop 5.25



Nevsun Resources - Stop 5.50



US Silver Corp - No Stop


 Rubicon Minerals - Stop 3.20



Humana - Stop 77.50