Daily Dispatch: More Political Math

April 02, 2010 | www.CaseyResearch.com More Political Math

Dear Reader,

Back in February, we poked fun at President Obama’s math because he implied his 3.83 trillion budget for fiscal 2011 will somehow put the federal government back on the track to fiscal sanity and shrink budget deficits. We noted that the budget calls for nearly a 9% increase in spending over the FY 2009 level, and that the only way not to have another record deficit in FY 2011 would be if tax revenues (which had grown by an average annual rate of less than one percent over the last decade) grow by almost 15%. We then joked that only a politician could get behind the math that plans to shrink budget deficits by increasing the budget deficit. Well, wait until you hear this next bit of political math.
On March 15 in Strongville, Ohio in a final push to win public support for Obamacare, the president uttered the following: How many people are getting insurance through their jobs right now? Raise your hands. All right. Well, a lot of those folks, your employer, it’s estimated, would see premiums fall by as much as 3,000 percent, which means they could give you a raiseLet me reiterate. The President of these United States said that his health care plan will cause employer health insurance premiums to fall by 3,000 percent.
Here’s a funny little YouTube video

explaining that math. President Bush said some pretty stupid things while he was in office, but this gaffe by Obama beats most “Bushisms” hands down. And I don’t know what’s worse, the fact that the president said it or the idiots in the crowd cheered.

Census Workers Boost Payrolls

According to the new jobs report from the Bureau of Labor Statistics, nonfarm payroll employment increased by 162,000 in March.

It’s not quite as good as it sounds. The increase in jobs includes the hiring of 48,000 temporary workers to conduct the Census. And the unemployment rate remained unchanged at 9.7%. Plus, long-term unemployment got worse. Of the 15 million people officially classified as unemployed, a record 6.5 million, or 44.1%, have been out of work longer than six months. Lastly, the U6 alternative gauge of the unemployment rate, which includes discouraged workers and those forced to work part-time, rose to 16.9% from 16.8%.

After the Bureau of Economic Analysis (BEA) recently released its monthly personal income and outlays report, the major media cherry picked the data boasting the headline “Consumer Spending Rises Again in February” or some variant on this theme. What wasn’t widely reported was the fall in personal disposal income together with a rise in personal consumption over this same period. The only way to balance that ledger is by taking on debt. Old habits die hard.

To get a better handle on a trend, we need a wide-angle lens. As today’s chart shows, personal income in the U.S. fell last year for the first time since 1969, the year the BEA began publishing the data. If a sustainable U.S. economic recovery hinges on an upturn in housing, neither is likely to happen if incomes in America continue falling, especially in the states most challenged by the crash in home prices.

Still getting your financial news from the biased Big Media? We can help. At Casey Research, we monitor all the trends that impact your life and your money. Start getting the objective and independent analysis needed to position your portfolio to profit from the unfolding trends by accepting a no-risk, no-hassle, 100% satisfaction-guaranteed subscription to The Casey Report. Get started now by clicking here.

Shale by the Pail: Europe Shakes Its Fist at Russian Hegemony
By Casey Research Energy Division

The latest buzzword on investors’ lips is shale and it’s everywhere. Shale gas production is rapidly growing and the domino effect of unconventional gas development on the global energy market is staggering. North America has already seen the stampede of companies staking their territories and is now in the next phase: consolidation. However, buying into the American industry giants now, where even a major strike creates only a blip in share price, is like catching a ship that’s left the harbor. But at Casey Research, we wouldn’t advise you to despair just yet, because the next big opportunity is just over the horizon. Coming up next the basins of Europe.

The new techniques in drilling and well completion have transformed this formerly unprofitable source into a gold mine. Add that to the success that shale gas has enjoyed in North America and you see why shale gas is creating a stir and intrigue throughout Europe. Possibilities for shale gas production in Europe are endless the American Association for Petroleum Geologists estimate a total resource of 510 trillion cubic feet (enough to power 27 European countries for over 30 years) of unconventional gas for Western Europe alone and the rewards for investors in the right place could be huge.
In addition, unlike the United States, where major gas companies started snatching up land and smaller companies as shale gas became more popular, Europe’s shale market is still in infancy. This puts the junior and smaller companies on the same playing field as the biggest players. If commercial amounts of gas are found on a junior company’s land, it’s not inconceivable that its share price will multiply by ten. At the very least.

Taking on the Bear

But the main attraction of shale gas in Europe, and what gives it government support across the board, is the increasing urge to break the stranglehold of the Russian gas giant Gazprom. Almost all of Europe is heavily dependent on the state-controlled Gazprom for the majority of their gas supply. Gazprom’s tap-twisting of Ukraine’s prices, through which flows almost 80% of Europe’s gas, has made it clear that Russia has a big stick and it is not afraid to use it.

With the installation of a pro-Moscow president in Kiev, Europe’s interest in a non-Russian source of gas has escalated, and should a U.S.-style shale phenomenon turn up in Europe, the energy landscape could drastically change.

Knowing Your Enemy: The Other Side of the Story

That is not to say that there aren’t any challenges facing the companies. The lack of equipment in Europe 20 fracturing sets vs. 2000 in North America is a major obstacle and at millions of dollars each, companies aren’t exactly falling over fracturing sets. Then there is the chance that the rush for land will lead to over-staking of territories, with more than one company claiming a piece of land. This will invariably lead to quarrels, even legal battles, which would delay exploration and create a mess for companies and shareholders alike. And after all this, no two shale basins are the same and techniques that work on one may not translate to the other. So companies looking for shale gas in Europe in largely unexplored regions face significant risks the initial production rate, its sustainability and costs of the well are all unknowns…and that’s precisely what makes it so exciting.

What Would You Do With A 670% Return? Shale gas is the hot topic in Europe today and we knew this would happen back in 2007. Our subscribers bought one .25 cent stock, then sold it at $1.80, netting a quick gain of almost 700%.

With the huge potential just waiting to be explored, investors need to have their ears on the ground to know about the “me too” companies, the ones that will hit the payload. For now, the watchwords are “oil shale in new markets.”[Ed. Note: Casey’s Energy Report has its finger on the pulse of the world’s most exciting energy plays… and its readers are the first to know which companies have the equipment, the management, the property and the expertise needed to make the big returns in oil shale.
At Casey Research, we know the sector better than others and we know who is strong and who is weak. Don’t miss out on the incredible opportunities that await investors in oil shale subscribe to the Casey’s Energy Report today with a generous three-month no risk, money back guarantee. Details here.]

Energy Independence: A False Goal
By Vedran Vuk

Energy independence is the new American sacred cow. For many, it’s already up there with supporting the troops, the virtue of high school teachers, and the holiness of fire fighters. Hardly anyone disagrees with the new national goal. The only disagreements now are between drilling for oil and producing other alternatives.

Well reader, since no one else will do it, I must attack this concept. First, there is the myth that energy independence will make us safer and lead to peace without our reliance on the Middle East. A quick look back into U.S. history dispels this myth instantly. Natural resources have little to do with our foreign escapades just look at Vietnam and Korea. There’s absolutely no reason to believe that our aggressive foreign policy will change with energy independence.

In fact, things would likely get worse. Imagine how the post September 11th world would have turned out with nothing holding the U.S. back in the Middle East. The younger members of Casey Research such as me, Chris Wood, and Jake Weber, wouldn’t be analyzing stocks right now. Instead, we’d be analyzing roadside bombs and kicking down doors in Saudi Arabia as part of WWIII. If anything, energy dependence kept the worst war hawks at bay.

The world is a safer place because countries have grown more interdependent. A militaristic supergiant with a violent history and without dependence on others is a frightening prospect. Look at the difference between China and North Korea. Which country is a bigger threat? China has absolutely no reason to attack us because of our interdependence. On the other hand, North Korea is much more threatening not because they’re developing nuclear weapons, but because they’re not dependent on us. This makes them a loose cannon.

War and security are only the peripheral problems. The real problem with energy independence is the economics behind it. The idea necessarily implies price controls or nationalization of energy companies somewhere down the road unless the entire economy is transformed by wind mills and solar panels.

For an example, let’s say that the U.S. becomes 100 percent energy independent. We don’t get a single drop of oil from the Middle East. Suppose OPEC goes crazy and pulls back the oil supply more than ever. A barrel of oil skyrockets from $80 to $300 on the world market.

So, we’re safe, right? Not exactly. The idea of energy independence assumes that our oil companies will continue to sell domestically for $80 a barrel while the rest of the world sells at $300. Domestic oil companies would have to be insane to do this. By refusing the market price, they would forego $220 in extra profit per barrel.

The only way to maintain the $80 price would be either through nationalization of the oil companies or export restrictions with price controls. Naturally, price controls always create shortages exactly what energy independence tries to avoid. Nationalization would be even worse. The government might as well tax the oil companies for the $220 profit and redistribute it to the public in the form of gas vouchers. The result would be crushing one industry for lower gas prices nationwide. Rather than energy independence being a new concept, this sounds like the same old tax and redistribute.

The obsession with energy independence can be a dangerous vice. Just look to WWII Nazi Germany. Instead of continuing to trade with Russia for oil, the Germans were obsessed with controlling Russian oil fields. The opening of Operation Barbarossa against Russia easily marked the biggest mistake of the German command. In a sense, World War II was won thanks to German economic ignorance on energy independence. If they had continued to buy oil from Russia and had fought on only one front as a result, history could have turned out much differently.

Energy independence is just a back-door entrance for redistribution and price controls. Without government intervention, oil companies could not be stopped from selling at world prices. It’s just supply and demand as always. The location of the oil does not change the world market price.

Friday Funnies

Heaven or Hell?

While walking down the street one day, a “Member of Parliament” (or Congress) is tragically hit by a truck and dies.

His soul arrives in heaven and is met by St. Peter at the entrance.

“Welcome to heaven,” says St. Peter. “Before you settle in, it seems there is a problem. We seldom see a high official around these parts, you see, so we’re not sure what to do with you.”

“No problem, just let me in,” says the man.

“Well, I’d like to, but I have orders from higher up. What we’ll do is have you spend one day in hell and one in heaven. Then you can choose where to spend eternity.”

“Really, I’ve made up my mind. I want to be in heaven,” says the MP.

“I’m sorry, but we have our rules.”

And with that, St. Peter escorts him to the elevator and he goes down, down, down to hell. The doors open and he finds himself in the middle of a green golf course. In the distance is a clubhouse and standing in front of it are all his friends and other politicians who had worked with him.

Everyone is very happy and in evening dress. They run to greet him, shake his hand, and reminisce about the good times they had while getting rich at the expense of the people.
They play a friendly game of golf and then dine on lobster, caviar and champagne.
Also present is the devil, who really is a very friendly & nice guy who has a good time dancing and telling jokes. They are having such a good time that before he realizes it, it is time to go.

Everyone gives him a hearty farewell and waves while the elevator rises…
The elevator goes up, up, up and the door reopens on heaven where St. Peter is waiting for him.

“Now it’s time to visit heaven.”

So, 24 hours pass with the MP joining a group of contented souls moving from cloud to cloud, playing the harp and singing. They have a good time and, before he realizes it, the 24 hours have gone by and St. Peter returns.

“Well, then, you’ve spent a day in hell and another in heaven. Now choose your eternity.”
The MP reflects for a minute, then he answers: “Well, I would never have said it before, I mean heaven has been delightful, but I think I would be better off in hell.”
So St. Peter escorts him to the elevator and he goes down, down, down to hell.
Now the doors of the elevator open and he’s in the middle of a barren land covered with waste and garbage.

He sees all his friends, dressed in rags, picking up the trash and putting it in black bags as more trash falls from above.

The devil comes over to him and puts his arm around his shoulder. “I don’t understand,” stammers the MP. “Yesterday I was here and there was a golf course and clubhouse, and we ate lobster and caviar, drank champagne, and danced and had a great time. Now there’s just a wasteland full of garbage and my friends look miserable. What happened?”
The devil looks at him, smiles and says, “Yesterday we were campaigning… Today you voted.”

Congressional Tipping Point

This video is just down right shocking. I thought it was one of the funniest things ever until I read that the guy is ill. But sick or not, this guy certainly shouldn’t be allowed to hold a position in Congress if he’s that far detached from reality.

The Second Amendment

The Age We Live In

MiscellanyA new Casey phyle in Uruguay. Ron Y. has volunteered to organize a monthly meeting located anywhere between Montevideo and Punta del Este depending on where interested parties are located. Drop us a note at Phyles@CaseyResearch.com and we’ll connect you.
And that, dear reader, is that for today… and for this week. David will be back with you on Monday. Until then, thank you for reading and for subscribing to a Casey Research service. Have a great weekend!

Chris Wood
Casey Research, LLC