Friday, August 21, 2009

Panhandlers and Oil Profits

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August 21, 2009  

One thing you have to say for panhandlers: they at least ask for your money…

The government just takes it. And it's only going to get worse. Our own Charlie Byrne got notice this week that the Palm Beach County Tax Collector was increasing his car registration fees by at least 35%.

And Michael Masterson tells us that the town of Delray Beach is fighting tooth and nail to keep property estimates as high as possible, sometimes arguing – "insanely", as he puts it – that the value of the home is higher than the amount it was bought for.

Yes, it's going to get worse, my friend.

Governments at all levels -- federal, state, and municipal -- are going broke. Their revenues skyrocketed during the real estate bubble and so did their budgets. Now that the fun is over, they can't bring themselves to cut expenses. And even if they wanted to, a host of quietly enacted bureaucratic laws and regulations makes cutting many jobs and expenses almost impossible.

The only solution is to pick more dollars from our pockets.

Michael Masterson, by the way, has been warning readers of his Journal about this for more than a year. "The writing is on the wall," he says.

Any fee, any tax, any duty that you pay will likely see a substantial increase. Count on more speeding tickets and parking tickets. If they could figure out a way to ticket you for getting a ticket, they would.

Homeowners all across the country can expect increased property taxes…

Real estate taxes are going up too, even as property values fall. Our natural resource editor Russell McDougal knows first hand the tricks that being used to bring in more tax money.

Rusty owned a home outside Atlanta for 15 years. To his surprise, his tax bill this year showed that his house suddenly doubled in size, from the 4,500 square feet he lives in to his local government's estimate of an astonishing 9000 sq. feet!

Despite protesting the assessment with 3 appraisals showing the true size of the home, Rusty lost the appeal. "They told me that my square footage is what they say it is," Rusty said. He has decided to sell the home rather than "give one more dollars to those bastards."

Millage rates all over the country are likely to increase to bring in more revenue, Michael Masterson predicts. The mayor of Jacksonville, Florida recently proposed the first millage increase in 17 years to overcome a $65 million shortfall in the budget. Just Google "millage increase" to grasp how many municipalities are using it to patch holes.

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Speaking of pickpockets…

The re-appointment campaign for Ben Bernanke is in full swing. Town-hall meetings in Kansas City, 60 Minutes interviews, the whole nine yards. Apparently, the guy really wants to keep his job. And as far as anyone can tell, he is still Obama's first choice.

So, should he get re-appointed?

We had a lively debate about this over coffee this morning. Our research analyst, Christian Hill, said he thought that Obama should reappoint Bernanke.

"When a general who leads his troops into war," Christian said, "you don't pull him out just when things are getting tough. You say, 'Hey, he got us in this mess. Let him get us out of it!"

Christian doesn't think Bernanke did a good job. "Far from it," he says. "But I think he owes it to the country. It wouldn't be fair to have anyone step into this quagmire."

Michael, ever the businessman, saw it quite differently.

"If I hire someone to run my company, and they run it into the ground, I am not going to keep him around to see if he can fix it. Hell no," he said. "I'm going to fire his ass."

Let us know what you think. Tell us why you think Bernanke should or should not get re-appointed. We will post your comments in a future article. Email us at

Is Petrobas's CEO playing coy?

Jose Sergio Gabrielli, Petrobas's CEO, just announced that he didn't expect his company to meet its 2009 production numbers. At best, he admitted, "it is going to be a hard task".

The company seems intent on pulling every last drop out of it's current wells, some with 60 years of production, before moving on to new wells in 2013.

Let's think about this. If you were CEO of the 9th largest company on the planet and you wanted to drive up oil prices, wouldn't it make sense to make a comment like that?

We are not saying that he would stoop to such measures to boost his bank account. We would never say that. Still, you have to admit, it seems a little curious.

Even Gabrielli said that "We think we are the best company, because we have the best knowledge, expertise, technical capacity and can meet financial needs…"

If these wells are running dry, Petrobras has known about it for a long time now. And it has known for a long time that the new wells won't be available for another four years.

It doesn't sound like they would be caught off guard by the production issues. It seems more like a play to drive up oil prices.

Even one of the world's best investors is bullish on Petrobras.

George Soros, who manages the $2.6 billion Quantum Fund, just made Petrobras his single largest holding. Petrobras now accounts for almost 22% of the total portfolio, and energy stocks are just shy of 50% of his portfolio. If George Soros is this heavily invested in Petrobras, chances are he has done some serious homework, and agrees the production numbers are obtainable.

Our view is that at some point in the not-too-distant future, oil will resume it's steady march back above $100/ barrel. Now is a great time to purchase energy companies. If George Soros is doubling down, one could do worse than follow his lead.

Speaking of which, members of Options Power Trader have been seeing tremendous gains on energy stocks lately. A trade on Noble Energy produced a gain of 116% recently. To learn more about the Options Power Trader, click here.

How to game the market like a gambling pro.

Every stock picker claims to have the perfect set of data to beat the market.

If an old NFL team wins the Super Bowl, the market is supposed to have a good year is a popular example (thanks Steelers!).

The problem here is that most of these equations are based on data has been analyzed in a vacuum and backtested to show a correlation where one might not really exist.

With modern computing power, the sheer amount of data that can be gathered is astronomical, as is the number of ways this data can be "mined" and sold as a sure-fire way to beat the market.

"These guys are worse than con men. At least con men admit they are cheating you. These guys really believe this garbage," said Andrew Gordon, our value investing expert.

To show what a sham most of these "proprietary trading systems" are, the author of the book "Nerds on Wall Street", David Leinweber, decided to undertake an effort in the absurd.

He found that the annual butter production (yes, butter, I can't make this up folks) in Bangladesh explains "75% of the variation in the annual returns of the Standard & Poor's 500-stock index."

You have the market beat right there. Case closed. For this advice I'd like to collect the usual 2/20 hedge fund fee please…

What's that you say? Not good enough? Ok, let's try a little harder.

Add to the annual production of butter in Bangladesh the cheese production of the U.S. and the total population of sheep in the U.S. and Bangladesh. That kicks up the predictability of past U.S. stock returns to 99%.

Andrew Gordon has a simple formula for success that doesn't rely on smoke and mirrors. "I look for the strongest companies that show quarter after quarter a desire to increase shareholder value". You can learn more about this elite group here.

Good Investing,

Bob Irish
Investment Director
Investor's Daily Edge

We want your feedback! Let us know your thoughts on this article. Email us at Email:


Bob Irish - Investment Director
Andy Gordon - Editorial Contributor
Jon Herring - Editorial Director
Ted Peroulakis - Editorial Contributor
Christian Hill - Managing Editor
Dr. Russell McDougal - Editorial Contributor
Steve McDonald - Editorial Contributor
Michael Masterson - Editor Emeritus


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