Make 203% as Washington becomes a global laughing stock

According to our nation’s new “Intel Czar,” the economy is the number one threat to the U.S. right now.

In testimony before the Senate Intelligence Committee, National Intelligence Director Dennis Blair warned that: “The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests.”

Now one ought to keep in mind that Blair was addressing the committee just a day or so before Congress would be disgorging the bolus known as the 2009 Stimulus Act. As such, Blair, with his 49-page statement, was just one more player in the administration’s full court press.

Our Own Worst Enemy

Still, Blair does make some interesting points: Suddenly, al-Qaeda is no longer the top-listed actor. Indeed, most of the “Axis of Evil” has fallen several notches down the old hit parade.

North Korea’s current or Iran’s future nukes? Still salient, but not “Number One with a Bullet,” as old Casey Kasem used to say. Russian territorial belligerence and Chinese currency intransigence? Worrisome in the long run, but still not the top threat.

No, Washington’s Numero Uno spy tells us that our worst problems stem from the rot within. Or, to quote the ever-so-sage Walt Kelly: “We have met the enemy, and he is us.”

Our Newest Secret Weapon: The Dollar Bomb

The grand economic downturn (wow, that is such an elaborate way to avoid saying “depression”) presents two key security issues. The first seems obvious enough: We need cash to fully fund our military.

I suspect that this is less of a problem than it seems at first blush. Coming up with more dollars these days is actually remarkably easy: Washington just prints as many as it wants.

In fact, this may even turn out to be a bit of a blessing in disguise (okay, it’s a really good disguise, but bear with me here). A great way to get more bang for your newly imagined bucks would be to hand them off to military contractors, who could then hire more workers to build more armored troop carriers, which could then be blown up in Afghanistan. Then we just do it all again!

Bingo: You’ve cut unemployment and sopped up excess industrial capacity in one fell swoop! Hey, it worked for LBJ and Nixon, right? Right? Hey, stop throwing those “Whip Inflation Now” buttons at me!

The Price of Weakness

Let’s move on to issue two: The longer this debacle continues, the more folks in odd corners of the world might get the idea that maybe those “’Mericans ain’t so smart after all.”

Much like Britain in its day (an apt comparison, since we pretty much bought our empire used from the Brits at the end of WWI), global control pretty much depends on the projection of the image of power. When that image falters, suddenly café agitators round the world have a much easier time persuading recruits to run around with Kalashnikovs and C4 undergarments.

And indeed, if you dig deep into Admiral Blair’s report, he does mention that al-Qaeda’s successful recruitment of Westerners over the past two years is making it increasingly difficult to play “Spot the Terrorist” at airports.

Hard to March When You’ve Shot Yourself in the Foot

But a mere economic downturn could not make us look but so dumb. Seriously, these things happen all the time, without risking national security. No, what makes us look inane and weak is the way in which our ineptitude has exacerbated a downturn into a full-blown crisis.

An example: Over the past few days, Justice and I have both bemoaned the current Secretary of Treasury’s glacial pace. It’s not so much that we want to see trillions in funny money dumped on us. It’s just that we wish they would rip the damn bandage off and move on already.

After weeks of promising to reveal his latest scheme, the best we got was a promise to come up with a schedule for formulating a plan, along with some vague threats to further “stress test” banks that have obviously already failed any sort of common sense test.

“It’s the Other Guy’s Fault. Oh Wait, I Am the Other Guy”

After calming down a bit, I actually went so far as to check with some connections I have in Washington as to why Geithner is moving so slowly. The current excuse coming out of the Treasury? The “New Team” has been unable to hire adequate expertise to figure out what to do next.

As I pointed out last week, the “New Team” is pretty much the “Same Old Team” that screwed things up in the first place. Indeed, the whole reason we were told to tolerate them was because their prolonged exposure supposedly ensured their expertise on the topic.

No wonder folks outside our borders are beginning to think we are stupid.

Turning Ineptitude Into Gold

There is one place where they are treasuring our fiscal inanities. Canada is enjoying a (relative) boom at our expense. Whereas the benchmark drop for most of the world’s markets has been hovering around 7.3% so far in 2009, Toronto’s TSX composite is down a mere 2.7%.

What’s propping things up north of the border? Gold, my friends.

Barrick Gold (ABX:NYSE) and 11 of their fellow miners are up some 5.2% as a group this year. And it looks like this boom is nowhere near clapped out.

And why should it be, when guys like Euro Pacific Capital’s Peter Schiff are calling for gold to increase another 60% before the dust settles. Think that’s a speculative call? Heck, you can make a pure value argument for these guys.

After being bludgeoned by 14 months of recession and a 47% share price crash, one might imagine that U.S. stocks ought to be pretty darned cheap right now. And despite all this damage, the S&P 500’s trailing P/E is hanging out around 29.1, some 40% higher than at the market’s absolute top back in October 2007. Barrick’s P/E of 18.88 beats that by some 35%!

Now if you were looking for a way to turn our foolishness into treasure, you could simply do as the Canadians do, and buy shares of ABX. That increase in gold ought to bump up the share price some $20 between now and mid-summer.

If you were interested in a bit of leverage, you could easily pick up mid-dated ABX call options. That same $20 spike would offer you gains as high as 203%.

Sincerely yours,

Adam

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Other Related Topics: Canada Investments , Economic Growth , Editor Adam Lass , Gold Investments

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