The Rude Awakening
Salt Lake City, Utah
Friday, September 8, 2006

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• Sorting the wheat from the chaff in the resource
  sector,
  
  
• Freakish geological speculation you can take to the
  bank,
  
  
• Hucksters, pirate-esque yarns, inept geologists and
  all the week's data all below...

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Joel Bowman, bunkered down in his "home-sweet-Ho-Jo" in
Utah, reports...

"Yours are too long and yours are too short," commented an
elderly man as he gazed from your junior editor's long
shorts to our accompanying friend's slightly "less long"
skirt. 

"Well, you are certainly welcome to your opinion," we
remarked, holding the door open for our clothing critic at
the gas station.

"I wouldn't worry about him if I were you," offered the gas
station clerk, himself wearing conspicuously long shorts.
"He comes in all the time and harasses the customers about
their inappropriate attire."

"Oh, we're not bothered at all," we replied. "We'd be more
worried if a man dressed like that complimented our choice
of attire."

Here in Salt Lake City, visitors are treated to a veritable
dichotomy of clothing and cultural styles. There are those
who are freakishly polite and occasionally vocal and those
who are freakishly vocal and occasionally polite. 

At last week's 26th annual Eris conference in Stowe, VT.,
we had the privilege of meeting a different breed of freaks
altogether...those that offer freakishly good investment
advice. Heading up this conference was the most freakish
investor of them all, Mr. Doug Casey. Below Doug offers
some thoughts on hucksters, pirate-esque yarns, inept
geologists and, most importantly, how you can sort the
freakishly good investors from the merely ordinary ones...

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----------------------------

When Competence is Incompetent
by Doug Casey

The more companies you evaluate, the more chaff you have to
sift through. On any given day I come across all types,
from well-meaning but generally inept geologists to out-
and-out hucksters who spin pirate-esque yarns of
unimaginable treasures and then laugh all the way to their
Mexican beach homes, bought and paid for with millions
lifted off of feckless investors.

Surprisingly, however, scam artists are not an investor's
biggest worry. Far more dangerous - and numerous - are the
"competent" professionals who swell the middle of the
industry's bell curve.

That's because while "competent" may sound like a desirable
quality, it can often be less than a good thing. Competent
people are those who execute their tasks with an adequate
degree of skill, satisfactorily meeting minimum
requirements. But many competent people are neither
inspired nor cutting-edge. Even government officials can,
on occasion, be competent (even if only to the degree that
they competently interfere with the progress of humankind).
My mother was a competent cook.

But make no mistake that a competent explorationist can
pose a very specific danger to unaware investors. I'm
talking about the variety of explorationist that has a
reasonably encouraging background with one company or
another, often times even a blue ribbon major. While the
individual in question, whether a geologist or an
executive, has no significant discoveries to their credit,
they can still proudly point to their long career as proof
of their competence.

Which impresses many investors, who then go out and buy the
stock thinking, "Well, Mr. Geologist worked for Barrick or
Exxon for five years... he must know what he's doing."

But you see, Mr. Geologist lacks something: the creativity
and the fire in the belly that's absolutely critical for
making big finds. He'll have a half-decent property, which
a dozen or so other half-decent geologists have looked at
in the past and drilled with limited success before passing
on. And Mr. Geologist, urged on by the company promoters
standing just behind him, will take your money and drill
more holes a few hundred feet from where the last person
drilled. He might even hit a couple of interesting
intersections you'll read about in the daily email touts
that besiege us all... but ultimately, the property will
turn out to be a sub-economic money-pit, eventually
returning to resource oblivion, waiting to be resurrected
by the next competent geo in the next bull market.

Can you make money on such operations? Absolutely... even
the dimmest of prospects often enjoy a moderate run in
share price before the gravity of marginal drill results
brings the stock crashing back to pennies. Can you make big
money on them? You have a better chance of getting
sunburned in a mineshaft.

Simply put, the resource sector is not for the merely
competent. We all know that the odds are very long against
an exploration prospect making it into production... by
some estimates the chances are one in a thousand, but some
astute observers put it at more like one in three thousand.
The success rate is higher for oil and gas, but hitting
significant pools is getting harder by the day. Given that
the chances for the average company are so slim, why should
we risk investing in an average management team?

Here's the key: Most mines and oil pools of any
significance are discovered by just a few individuals. I've
spent my career following these professionals - traveling
and eating dinners beside them, even playing poker with
them (in fact, I have a whole publication, The Explorers'
League, dedicated to tracking their business ventures) -
and I can tell you that to call them "competent" would be
an insult.

These people are mercilessly driven - often sleeping scant
hours per night between work on numerous projects - and
perfectionist students of their science. But most of all,
they are inspired, out-of-the-box thinkers. The kind who
would rather die in a cave-in than endure the boredom of
plugging a few more futile holes in a sub-par property in
the hopes of lifting some easy cash off of the investment
unwashed. They come up with ideas most geologists would
never dream of... and would never have the courage to
implement even if they did. The type of unique business
models that make serious money for shareholders.

These professionals are freaks, in the absolute best sense
of the word. Outliers at the far reaches of the bell curve.
And make no mistake, they produce the real wealth that gets
generated in our sector.

Sometimes these professional "freaks" produce real wealth
without ever sinking a drill bit into the ground. Silver
Wheaton (T.SLW) is a classic example (a company I
recommended to readers of the International Speculator in
February 2005, and which we rode to peak profits of 321%).
Let me give you a stat on SLW that I think sums up the
company's genius: the market cap is nearly $2.5 billion,
and yet it has only seven full-time employees. Just seven.
That's $350 million of value for each worker.

How did Silver Wheaton achieve such towering gains -
greater than many mining companies with thousands on the
payroll - with this skeleton crew? Here's how: the company
pivots on a brilliant and absolutely unique strategy
brainstormed by Ian Telfer, one of mining's brightest
minds.

Ian recognized early on that we're in a rising market for
gold and silver. He also noted that while there are many
ways to invest in gold, there are few pure silver plays.
Why? Because silver is mainly produced as a by-product from
mining other metals, few operations have primary
production.

So, Ian decided to create what nature couldn't: a pure
silver company. He did so by purchasing by-product silver
production from several mines around the world, creating
the premier vehicle for investing in silver. When the white
metal spiked to $15 this past May, SLW became the go-to
stock for investors, doubling the company's share price in
short order.

The real genius is that Silver Wheaton doesn't actually do
any mining... they let others do the heavy lifting, and
simply collect checks from the sale of the silver. Thus the
lean staff and slim overhead.

We look for the same sort of dynamic thinking in the oil
and gas sector...and often we find it. We recently
recommended a very unique oil-drilling company to the
readers of Casey Energy Confidential. This drilling company
leases out its rigs in exchange for a piece of the action,
rather than for cash day-rates. This strategy incurs more
risk than leasing rigs for cash, but it also offers the
prospect of a much high return. (See below for more
information).

Having made a lot of money on high-octane business models
like these, I see no point in wasting time and cash with
"competent" companies. I'm simply not interested in giving
my money to a well-meaning plodder. The only sensible
strategy is to bet on the sector's upper-percentile
professionals, the ones pushing the limits and coming up
with strategies near guaranteed to make us big gains.
 
Bottom line: Bet on the freaks, not the competent
professionals.

[Joel's Note: DOUG CASEY is a contrarian investor, sought-
after public speaker and author of several books. His work
"Crisis Investing" held the position of # 1 bestseller on
the New York Times list for 26 consecutive weeks. Doug's
unusual views on the economy — and just about everything
else — have gained a huge following in the investment
community, and it certainly helps that his stock
recommendations of undervalued junior exploration companies
have made his subscribers millions. Now in its 27th year,
Doug's monthly newsletter, the International Speculator, is
one of the most established and esteemed publications on
gold, silver and other natural resource investments.
Together with the Casey Energy Speculator, it covers a
broad range of carefully selected stocks with the very real
potential of double- and triple-digit returns within 12 to
24 months.

To learn more about these rock solid services, follow these
links:

International Speculator:
www.caseyresearch.com/crpmkt/crpSolo.php?id=37&ppref=RAK001ED0906A

Casey Energy Speculator:
www.caseyresearch.com/learnMore.php?pubId=2&ppref=RAK002ED0806A

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And the Markets...