Friday, July 24, 2009

Reflections from Vancouver

Agora Financial
Agora Financial's Outstanding Investments

July 22, 2009

Reflections from Vancouver

Dear Outstanding Investments Reader:

I'm in Vancouver for the 10th Agora Financial Investment Symposium.  It's great to see and talk with so many OI subscribers and readers.  The OI crowd makes for quite a spectrum of age and diversity.  A couple common themes, though, are peoples' desire to understand what's going on out in the economy, and their openness to new ideas.  It's my mission, of course, to find facts and ideas that matter and get them out to you.

Getting There

On that note, just getting to Vancouver was a revealing trek.  Despite the ongoing Great Recession, it never ceases to amaze me how busy are the major airports.  My trip took me through Atlanta and Seattle, and both airports were wall-to-wall travelers.  The waiting areas were full, the planes were packed and the baggage areas were filled.  Even the rental car counters had lines out the door.

Busy airports may or may not be a sign of life in the larger economy.  Even unemployed people can buy a ticket and fly somewhere.  All you need is a credit card, if you can still get credit.  Meanwhile, airline profit margins are tight.  Fuel prices are creeping upwards.  The airlines are still nicking you for things like $15 baggage fees.  And as I flew over the heartland of the nation, I looked down and pondered our collective fate.

Federal Reserve:  "No Net New Jobs"

Last week, for example, the Federal Reserve predicted that the U.S. unemployment rate would surpass 10% in the coming months.

That's no big surprise.  The true U.S. unemployment rate as at least 15% already when you factor in the long-term unemployed who are not carried on the "official" books.

Then the Fed made a shocking prediction.  It forecasted that the U.S. economy would add NO NET NEW JOBS over the next five years!  Whoa!

No net new jobs?  That ought to scare you.  The Census Bureau predicts that the U.S population will grow over five years.  But the numbers of new jobs will remain static.  That is, for every job gain there will be a loss.

This job-stagnation is a recipe for all sorts of bad things at the local, state and national levels.  Government budgets won't balance, so I guess we can plan on more "cost saving" measures such as releasing prisoners early and closing schools.  Yep, that's how to build a great nation… More criminals and fewer well-educated citizens.

The Fed announcement is basically an admission of monetary and policy malpractice at the highest levels of the U.S. political class.  I witnessed it first-hand a couple weeks ago when I was in Washington, DC.  I met with some Congressional staffers who were just clueless.  But they sure were full of themselves.  They had all the answers, too.

The Good Old Days of the Great Depression

As my Delta flight flew over eastern Washington the other day, I looked down and saw a familiar sight.  It was a long, narrow body of water, with a stark, linear feature at the end of it.  It was Lake Roosevelt, impounded by the Grand Coulee Dam, of which I wrote last year.
From 36,000 feet, Grand Coulee Dam sure looked small.  But it's the largest manmade structure in North America.  It's three times the height of Niagara Falls.  It's larger than the Great Pyramid of Cheops, times a factor of three.  It has enough steel in it (9 million tons) to build about 225 World War II-era battleships, at 40,000 tons each.  Today it's rated at about 6.8 gigawatts of electrical power, or the equivalent of about seven large nuclear power plants.

Grand Coulee was built in the 1930s as a government "stimulus" project.  This was back in the good old days when the government knew how to "do stimulus."  Y'know, build big dams.  Kick-start the steel and cement industry.  Employ tens of thousands of skilled workers.  Do some heroic engineering and create an energy project that will benefit the nation for decades into the future.

No, Grand Coulee by itself didn't solve the issues of the Great Depression.  But it sure did come in handy when it started spinning power in 1942, just as the U.S. entered into fighting World War II.  One lesson is that if you dream big dreams, you never know what will come out on the other side.

And today?  Congress's idea of "stimulus" is to pass a $787 billion pork-bill.  But most of the money won't get spent until 2010 and 2011.  Oh well, we're going to have to borrow it all anyhow.

Yard Sale Nation – People Are Dropping

I drove across part of southeast Washington and northwest Oregon during my journey to Vancouver.  I haven't been up in these parts in many years, so this was my chance.

As I motored around the two and three lane back roads, I sure saw a lot of stuff for sale.  It seemed that many households wanted to sell one item or another, often parked prominently along the highway.

I saw cars for sale – old, not-so-old, and nearly new.  There were vans, SUVs, trucks, campers and trailers.  There was farm and construction equipment.  There were boats and ATVs.  Then there were dozens of homes and lots with "for sale" signs.  Plus many yard sales, with all sorts of household, workplace and institutional goods waiting for buyers.

It was entirely clear that many people are trying to raise cash.  So everything's for sale. 

Remember that old expression, "Shop 'Till You Drop?"  Well, people are dropping.  Where's that Grand Coulee Dam project when you need it, right?

Following the Trail of Lewis & Clark

I drove along the Columbia River for quite a ways, following the trail of Lewis & Clark, from their expedition in 1805-1806.  Today the Columbia is a well-regulated, controlled body of water crossed with dams and dredged as necessary.  Large ocean-going ships float serenely in the water next to downtown Portland.

In their journals, Lewis & Clark described a wild Columbia River of raging rapids, filled with gigantic log snags.  Some of the logs floating down the Columbia of old were up to 7-feet in diameter and 200-feet long.  Big trees, huh?  It was a different world back then.

The Old Portland Customs House

Speaking of a different world, I was impressed by the old U.S. Customs House in Portland.   Now THAT building also represents a different world, one where the federal government raised its revenues from duties and imposts.

In the olden days a ship captain would dock at Portland, or another locale on the Columbia.  Then he'd walk over to the U.S. Customs office to declare the cargo and pay the taxes due.  This was how the federal government funded its operations.  And when the funds were spent, the government had to observe its own fiscal limits.

In other words, the original U.S. government had to take an interest in growing and maintaining the economy.  Today, with the fiat dollar, the feds think that they can do anything.  Until, of course, the nation spends itself into national penury.

Lots of Trees

I drove up the west coast of Washington on Highway 101.  I passed mile after mile of land owned by none other than Weyerhaeuser (WY: NYSE).   Lots of trees.  Wow.  At least somebody's assets are growing in this economy.  Really, wow.

It was interesting to see the clear-cut areas, large swaths covered in stumps and piles of tree-related debris.  Then there were areas of second- and third-growth, with trees of different ages making their way towards the sunlight.  Weyerhaeuser conveniently places signs that describe what's going on.  "First harvested in 1912," for example.  Then, "Second harvest in 1979."  And eventually, "Planned harvest in 2035."  That takes some serious land-management and long-term planning.

The housing industry is way down, which is obviously bad for Weyerhaeuser.  But Weyerhaeuser is also turning into a leading player for research into second-generation biofuels, derived from wood-waste.  Long term, I think Weyerhaeuser can leverage its vast holdings of land, timber and forest byproducts into new lines of profitable business.  That is, if the federal and state governments don't totally screw up the economy.

The Agora Financial Investment Symposium

Finally, I'm here at the Agora Financial Investment Symposium.  There's a lot going on, of which you can read in the daily summaries in other Agora pubs like the 5-Minute Summary and Daily Reckoning.  There's also a way to purchase CDs of the conference if you want to listen to all of the speakers.

I'll be talking on Thursday morning, July 23, on the question, "Is God Brazilian."  If you're a frequent OI reader, you know why I'm addressing that subject.  I'll discuss Brazil's offshore oil development.  I'll mention some familiar names from the OI portfolio, such as Repsol (REP:  NSE), Statoil (STO:  NYSE), BP (BP:  NYSE), FMC Technologies (FTI:  NYSE), Halliburton (HAL:  NYSE) and Baker Hughes (BHI:  NYSE).

And I'll check back in with you next week.

Best wishes, and thanks for reading.

Byron W. King

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