Weaker Dollar / Stronger Gold February 12, 2018 After the last two weeks, there’s almost no telling what will happen in the equities market when the Dow opens for the week. Whereas safe haven investments such as gold would normally be hitting the stratosphere, the looming threat of multiple interest rate hikes in 2018 have dampened enthusiasm for what might have been a rally. Although the Dow and S&P are climbing in early trading, a weaker dollar and higher crude prices and giving gold support. In fact, at press time, all precious metals were seeing an uptick with Gold solidly over $1,320. Using hindsight, if investors think the recent stock market dives were already baked in as a coming correction, we’ll soon see how much consumer confidence is really affecting our economy. Unchecked Government Bureaucracy Run Wild A new audit that shows a Pentagon agency losing hundreds of millions of dollars is being reported by Politico as an “exclusive.” While that’s technically correct, a government agency losing, wasting or misplacing millions, billions and even trillions of dollars (this is not hyperbole, folks) is nothing new. Politico’s report is a reminder of what bloated, unaccountable government gets you. “Ernst & Young found that the Defense Logistics Agency failed to properly document more than $800 million in construction projects, just one of a series of examples where it lacks a paper trail for millions of dollars in property and equipment,” Politico reported. “Across the board, its financial management is so weak that its leaders and oversight bodies have no reliable way to track the huge sums it’s responsible for, the firm warned in its initial audit of the massive Pentagon purchasing agent.” The report describes the Defense Logistics Agency (DLA) as the “Walmart” of the military, an entity with 25,000 employees who provide “everything from poultry to pharmaceuticals, precious metals and aircraft parts.” The problem is, we don’t know where their money goes. The report reveals issues ranging from “misstatements” in the agency’s books, lack of documentation about projects that are in motion, to no documentation at all for $384 million in spending. What’s even more shocking is the tepid response from the agency itself. When contacted by Politico, the agency wasn’t surprised by the conclusion, and insisted it “will overcome its many hurdles to ultimately get a clean audit.” “The initial audit has provided us with a valuable independent view of our current financial operations,” Army Lt. Gen. Darrell Williams, the agency’s director, wrote in response to Ernst & Young’s findings. “We are committed to resolving the material weaknesses and strengthening internal controls around DLA’s operations.” Wow, while the DLA may treat our money like water, it sure has refined the use of euphemisms. Can you imagine if you were the accountant for a small firm and you explained the $100,000 missing from the books as a “weakness” in your “internal controls,” and expected to get away with it? But this disaster isn’t unique. The corruption we’ve watched unfold over the FISA (Foreign Intelligence Surveillance Act) warrant scandal presents another side of the same coin: a federal bureaucracy that has grown so massive it “forgets” who it is answerable to and begins to see itself as the living entity to be served. Bureaucrats in the information business flout the law, as though they’re above it. While those in charge of our money use it like a never-ending water stream, that is unending and belongs to them. Consider this from The Washington Post in April 2014: “The State Department’s inspector general has warned the department that $6 billion in contracting money over the past six years cannot be properly accounted for and cited ‘significant financial risk and…a lack of internal control.’” A litany of problems were documented by WND in 2015, indicating a whopping $8.5 trillion that was unaccounted for by the military since 1996. WND reported some of the spending and accounting problems uncovered at the Pentagon including: Pentagon Spends $1 Billion Destroying $16 Billion of Ammo $300 Million a Year Unaccounted for in Afghanistan $1 Billion Paid for Loose Bolts and Damaged Aircraft $700 Million for Afghan Gem Cutters. (You know, to reduce Afghani unemployment) And this from Forbes in December 2017: “On July 26, 2016, the Office of the Inspector General (OIG) issued a report titled: ‘Army General Fund Adjustments Not Adequately Documented or Supported.’ The report indicates that for fiscal year 2015 the Army failed to provide adequate support for $6.5 trillion in journal voucher adjustments.” These details could give you the idea that funny business with your tax dollars is the exclusive purview of the Pentagon. It’s not. While the military gets its share of scrutiny because of the budget, this is a government-wide issue. Our problem is based in financial chaos fostered by absurd decision-making and bad management at every agency and throughout our massive, unaccountable bureaucracy. Case in point: The New York Times reported this past Tuesday that FEMA paid $156 million to an Atlanta entrepreneur to provide 30 million meals to the people of Puerto Rico in the aftermath of Hurricane Maria. The Times reported that Tiffany Brown, of Tribute Contracting, LLC, had no experience in large-scale disaster relief. “Ms. Brown described herself in an interview as a government contractor — ‘almost like a broker,’ she said — who does not keep employees or specialize in any field but is able to procure subcontracted work as needed, and get a cut of the money along the way. She claims a fashion line and has several self-published books, and describes herself on Twitter as ‘A Diva, Mogul, Author, Idealist with scars to prove it,’” The Times reported. FEMA finally cancelled the contract after only 50,000 of the 30 million required meals were delivered. Ms. Brown is disputing the termination and seeking $70 million in compensation. This is at least the sixth government contract awarded to Ms. Brown that had to be cancelled, according to The Times. When the government views the citizen as the servant, we get weaponized law enforcement agencies to be used against us, and law-breaking agency bureaucrats and politicians who see our democracy as an inconvenience to be subverted. The contempt that allows this corruption to grow also feeds a sloppy carelessness with our money. President Trump has pledged to deal with waste and mismanagement. He’s no doubt realizing our problems are not symptoms of incompetence alone, but a reflection of a dangerous contempt for the people and the republic itself. Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.