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Daily Dispatch: Signs of the Times - Feb 08, 2010
Published:
February 08, 2010
by Nrtadmin
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| February 08, 2010 | www.CaseyResearch.com | Signs of the Times
Dear Reader,
I confess to being no big fan of televised sports. Proof of that is that I didn’t know the names of the two teams playing in the Super Bowl until last Friday.
I did know the name of one of the teams – the long-suffering Saints. Having lived in New Orleans for the better part of six years, I am well acquainted with their challenged history. So, with some sense of incredulity that they finally made it into the “big show,” sat down to watch a few plays last night… and ended up watching the entire game.
If all football games were that exciting, then I could see joining the ranks of couch potatoes who regularly plan their weekends around the next big game. All in all, it was one of the best sporting events I’ve seen – with drama, excitement, suspense, turnabout, and, in the end, a victory by the underdogs. So, geaux, Saints!
The only unwelcome intrusion in an otherwise enjoyable evening was Audi’s “green police” advertisement. I suspect it was meant to be a joke, showing people being roughed up by the police for using incandescent bulbs or not composting, and so on. If so, it backfired – at least with me – because the company’s pitch ultimately revolved around one of its cars being voted as being the most “green” on the market, or some such.
You can see the ad
.
(And tell me what you think by dropping me an email at David@CaseyResearch.com.)
Now, please don’t get me wrong – just because I am critical of the green movement doesn’t mean I am for polluting.
Of course not.
But I can tell you unequivocally that the world is a far, far cleaner place than it was when I was a child. Back then everybody used to reflexively hurl their empty soda cans (or any other refuse that came within reach) out of their car windows without any consideration other than to make sure your throw went wide of any pedestrians.
Over time, of course, it became obvious to most folks that it was unsightly and unsanitary for the roadsides to be covered with trash. And so littering quickly became socially taboo.
Another lesson I’ve learned over many years and many miles traveled is that with economic prosperity comes a natural tendency to want to live in better and nicer places.
And it takes no special genius to realize that property values in a neighborhood adorned with the hulks of rusty cars and trash on the sidewalks will be lower than in a place with clean streets. Sooner or later, people “get it” and start taking care of their surroundings.
Yet, as with so many things, there is a worrying class that gains satisfaction by convening over low-fat lattes to plan new and more militant ways to force their fellows to live life exactly as they think they should. And make no mistake, for many of these ninny-nannies, there is a personal profit motive involved. Case in point, almost the only engineers graduating from U.S. colleges over the last couple of decades were “environmental” engineers. And, hey, environmental engineers need to eat, too.
Regardless, environmentalism has long since evolved into a religion, with many of the same trappings – the sale of indulgences in the form of carbon credits popping quickly to mind.
As with any religion, no matter how quirky, if it makes you happy and you don’t try to force it on me, then live and let live, I say.
But that is very much not the case with the environgelicals who want to force me to follow their treasured commandments, starting with “Thou shalt drive a dangerous little death trap that gets 50 miles to the gallon” and going on far past the number ten, to “Thou shalt wear only natural, unbleached fabrics hand harvested by indigenous tribes with fair-trade designations.”
These are not mild annoyances; they’re economically potentially ruinous. For example, it’s estimated that America’s already busted car companies will have to spend another $50 billion to retool to meet the government’s gas mileage regulations over the next six years. And with “greenhouse gases” now in the regulating hands of the EPA, new bureaucratic dictates that will cause the already struggling U.S. manufacturing sector to comply or die the death of a thousand regulatory cuts and taxes are a certainty.
It should be no surprise when much of what’s left of U.S. manufacturing finally decides to throw in the towel and set up shop “over there.”
Which, in turn, will result in the U.S. trying to enforce some sort of carbon tax on imports or raise taxes on foreign-sourced income earned by U.S. companies… and… and…
But isn’t the president’s ambitious energy agenda, built as it is around the increasingly unpopular idea of cap and trade, made moot by his plummeting ratings and his soaring ineffectiveness?
On that topic, I will ask our own Donald Grove to assume the podium. So, Don – does the president still intend to pass cap and trade?
Obama Budget Assumes Cap-and-trade Revenues
By Don Grove, Casey Washington Correspondent
People around this town tended to assume, I think realistically, that cap-and-trade, along with health care reform, was dead for now in the aftermath of Scott Brown’s dramatic win in Massachusetts. The president apparently did not get the message.
At a town hall meeting in Nashua, NH, on Tuesday, Obama recognized the possibility that the Senate could pass an energy bill without cap-and-trade provisions. He insisted, however, that “the concept of incentivizing clean energy so that it's the cheaper, more effective kind of energy is one that is proven to work and is actually a market-based approach.”
I guess one could argue, as the president does, that interfering with the normal workings of the free market is “a market-based approach.”
The EPA section of the President’s Budget Plan, issued February 1, notes that “The Administration supports a comprehensive market-based climate change policy to reduce greenhouse gas emissions in the United States more than 80 percent below 2005 levels by 2050. The President also supports a near-term target in the range of a 17-percent reduction by 2020.”
That projection may not be that far off, since we are on track for a return to the Stone Age, with much of the population having starved to death and the remainder gainfully employed by hunting and gathering. Of course such a lifestyle does wonders for reducing the emissions of those dangerous GHGs.
Later on, summary table S.2, Effect of Budget Proposals on Projected Deficits, shows a long blank for “Allowance for Climate Policy” during 2010-2020. Other items listed in table S.2 show plus or minus figures indicating how the president’s various budget proposals will increase or decrease deficits in future years – but not for climate policy.
So why not?
Footnote five below the table explains that:A comprehensive market-based climate change policy will be deficit neutral because proceeds from emissions allowances will be used to compensate vulnerable families, communities, and businesses during the transition to a clean energy economy. Receipts will also be reserved for investments to reduce greenhouse gas emissions, including support of clean energy technologies, and in adapting to the impacts of climate change, both domestically and in developing countries.
Leaving the presumed savings line blank makes it easier for Congress to negotiate climate legislation. So far it sounds like the president is still expecting to implement cap-and-trade as promised during his campaign:As president, I will set a hard cap on all carbon emissions at a level that scientists say is necessary to curb global warming – an 80% reduction by 2050. . . In addition to this cap, all polluters will have to pay based on the amount of pollution they release into the sky. The market will set the price, but unlike the other cap-and-trade proposals that have been offered in this race, no business will be allowed to emit any greenhouses gases for free.
The president’s budget request gives a boost to renewable energy and especially to nuclear power but takes away breaks for coal, oil, and natural gas, such as by eliminating $2.7 billion in fossil fuel tax preferences in 2011 – $38 billion over ten years (Table S.8). Ultra-deepwater drilling and expansion of the strategic petroleum reserve will be cut. The royalty-in-kind program will be discontinued. New fees will be imposed on oil and gas drillers on public lands.
Clean energy research funding increases from the $36 billion it already got in the stimulus bill (PL 111-5). Renewable energy programs including wind, solar, and geothermal jump 5% to $2.6 billion. NASA gets $1.8 billion in 2011, doubling to $2.3 billion in 2015, for climate science like the Orbiting Carbon Observatory.
The proposed budget eliminates funding for the Yucca Mountain, Nevada, spent nuclear fuel storage facility. Obama had promised to shut Yucca Mountain down, although he is increasing loan guarantees for new nuclear power generation by $36 billion in 2011 to $54.5 billion. A new DOE commission will look at alternate disposal options for spent nuclear fuel, apparently abandoning the significant investment in Yucca Mountain even as one of its most powerful opponents, Senate Majority Leader Harry Reid, prepares to slip quietly away in 2010.
Oddly, natural gas, a clean and abundant alternative fuel, seems to have been tarred with the same brush as its untidy cousins, oil and coal. Oh, well. Ours is not to reason why, ours is just to observe what these luminaries are doing and invest accordingly.
Regards, Don
Stimulus Saved the Day? Really?
Friend and correspondent Mark V. sent along a PBS interview with David Stockman, President Reagan’s budget director. In this interview, Stockman strongly objects to former Secretary of the Treasury Hank Paulson’s contention that he saved the economy by bailing out his alma mater Goldman Sachs and others of the Wall Street boys’ club.
Here’s an excerpt from the interview, along with a link to the full text…
PAUL SOLMAN: So, if you had been in the administration after Lehman Brothers, you wouldn't have supported bailing out AIG?
DAVID STOCKMAN: No, absolutely not. It was the single most, you know, drastic error in policy in modern history, going back to the 1930s. This was exactly the wrong thing to do.
It's destroyed any basis for fiscal discipline in the United States. I was a member of Congress, and I know how they think. And they think by analogy. If you did it for John, you have got to do it for Bob. There is no way that any congressman is ever going to vote against farm subsidies or ethanol subsidies or housing subsidies or anything else, refrigerator subsidies, once we have made this tremendous bailout for Wall Street, and we stepped into AIG.
PAUL SOLMAN: Well, spoken like a true gunslinger, but you would have been taking an enormous risk.
DAVID STOCKMAN: It's part of the capitalist system. You know, if an investment bank gets in trouble, it ought to fail. If a hedge fund gets in trouble, it ought to fail.
The idea that our system is so fragile that the failure of Lehman Brothers or even Goldman Sachs, which could have happened, allegedly, in the next few days, would have brought the whole system down, I think, is baloney. I think it's an urban legend that was created by Wall Street.
Full transcript here.
Signs of the Times
U.S. Business Bankruptcies on the Rise. According to a report out of Reuters, an average of 342 companies filed for bankruptcy each and every day in January, a 7% increase over the same month a year ago. The report also explained that a firm specializing in providing bankruptcy data to lawyers and lenders believes, based on the data, that the number of bankruptcies in 2010 will top that of 2009.
Debt? What Debt? The chart here, from BusinessInsider.com, shows total U.S. public and private debt. As you can see, the debt bubble that led to this crisis hasn’t been reduced at all.
What has transpired, as our own Bud Conrad has shown several times, is that a turndown in private debt has been more than offset by soaring public debt. In other words, Uncle Sam is perpetuating the debt bubble.
Ultimately, this has to be resolved – with the only politically feasible solution (or at least as the politicians will see it) being to debase the currency that the debts are paid back in.
Meanwhile, a businessman I know told me last week that even though he has never missed a payment on his personal or corporate debt, the banks he has relationships with have cut all of his credit lines back to the minimum and that he couldn’t get a loan from anyone, for anything, at this point. This does not bode well for a quick restart of the engines of the nation’s businesses. At least not for those that don’t rely on government spending for their bread and butter.
Still on the topic of struggling businesses, an article in Time magazine sheds some light on the ongoing devastation in the construction trades. It’s worth a read and passing along, in case you know someone in that business who is still holding out hope for a quick return to the good old days of the recent housing bubble past. It’s time to start getting serious about finding a new line of work.
China Continues to Diversify. An article in the New York Times today discusses that the Chinese Investment Corporation, the entity tasked with helping to diversify China’s currency reserves, has been on a buying spree of late, and now owns big positions in many of America’s top brands, as well as international resource firms.
Meanwhile, friend Sadia from the UK sent along the following article from the Times showing that a majority of Chinese surveyed think their country is headed for a cold war with the U.S. While, as a result of the current crisis, the U.S. has become more – not less – important to China’s export-based economy, it’s impossible to predict what the heads of any command economy will do if pushed past some invisible nationalistic or economic line.
In the case of China, this is especially true – in that the country’s success has led its leadership to become thoroughly confident that, a decade or two down the road, they have a date with destiny at the top of the global economy. (Which, if you think about it, requires accepting that the Chinese have finally solved the problems that have laid all prior command economies low… highly improbable, in my view.)
Even so, on this side of the Pacific, the Obama administration seems to be intent on testing how far they can push the line with China, with a range of unwelcome initiatives that include everything from selling advanced weaponry to Taiwan and having a cuppa with the Dalai Lama, to applying trade sanctions and forcing the Chinese to revalue their currency. Gee, maybe we’re headed for a new cold war, after all.
How to Know We’re in Trouble. Over the weekend, Timothy Geithner, the former head of the NY Fed and currently pulling a stint as Goldman Sachs’ secretary of the Treasury, was asked by an interviewer with ABC News whether the U.S. was in danger of losing its AAA bond rating, as Moody’s has warned it might. His response was a strident, "That will never happen to this country."
Given that Geithner is one of the nation’s best and brightest that missed and really missed the signs that a financial crisis was imminent, his contention that the U.S. can’t lose its gilded bond rating should be cause for concern. Mohamed El-Erian, CEO of PIMCO, the largest bond fund in the world, and one of the few institutional types who did see the crisis coming, is not so sanguine in the prospects for U.S. debt. He stated in an interview today that he now preferred to invest in German bonds, rather than those marked “Made in USA.” Maybe someone better tell Geithner?
Until Tomorrow…
And that, dear readers, is that for today. As I sign off, I see the markets are decidedly wishy-washy, with mixed results across the board. All in all, a time-out for traders to catch their breath and try to figure out what the next play is. Given the piles of debt that still need to be dealt with, I’m putting my money on precious metals, the hard-fighting underdogs that, despite being steadily dismissed by the establishment as losers, just keep on winning.
For those of you looking to get positioned in gold and silver during this brief pause in the action, look no further than Casey’s Gold & Resource Report – a real bargain at just $39 a year. Details here.
Until tomorrow, thanks for reading and for being a subscriber to a Casey Research publication.
David Galland
Managing Director
Casey Research
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