Unintended Consequences
Research for Online Investors

by John Dalt

12/10/09

Unintended consequences, they are everywhere.  When you squeeze a balloon on one end, the other end bulges out.  When you borrow all the money the bank has, they get worried about your ability to repay it, and want to charge more.  When you regulate mining, you get less mining and the cost of the natural resource increases.  When you have 10 girlfriends, your wife will eventually find out and move back to Sweden.

In West Virginia, Consol Energy has sent out lay-off notices to 500 employees.  Consol lost a lawsuit on a mining permit, brought by environmentalists.  The plaintiffs claimed they did not receive enough information during the public comment period.  The company did nothing wrong, the court blamed the Army Corps of Engineers for the lack of documentation.  The company has 60 days to comply, so they sent out 60-day lay-off notices.

According to the article “Coal Company Cuts 500 Jobs, Blames Environmentalists” in the Washington Post, the EPA is sitting on 79 permits for surface mining in West Virginia for “enhanced review.”

What I found amusing was in the comments attached to the article.  It seems this area of West Virginia voted for Maobama and is now reaping their rewards.  There are quite a few posts concerning ‘hope and change.’  The post I found most amusing was by Big-Bear, “If you know an environmental type, do something mean to them, especially around Christmas. Something that will cause them to lose faith in humanity. Something cruel. Something that will leave them wide-eyed and gape-mouthed, saying: "B-but, why would someone d-do that to me!?” Since they all ‘want what is best for the children’, this caught my attention.  We have all become too tolerant of stupidity, allowing it to grow around us unchallenged.

“Moody’s warns U.S., Britain on Credit Ratings”, in the Washington Times.  Both countries are in danger of losing their AAA credit ratings.  Britain is expected to borrow more than 13% of their GDP this year, the U.S. almost 10%

Fitch cut Greece’s sovereign debt rating on Tuesday and Standard and Poor’s put Spain on negative credit outlook.  There are 17 countries with AAA credit ratings.  How many will there be in two years?  Buy gold.

The European Union has warned Greece that their bonds will not qualify as collateral by the European Central Banks after 2010, if they do not take action to bring finances in order.  The new government in Greece is socialist, so expect a few nationalizations.  The fastest way to fix your books is to seize business.  Is this what awaits us in the U.S.?  Or has it already started with the TARP being forced on banks, whether they wanted it or not.  GM and Chrysler were forced into bankruptcy, and the parts parceled out to favored political groups.  Buy gold.

The U.S. Treasury auction of 30-year notes revealed buyers were reluctant to loan money to Uncle Sugar at 4.4% interest.  Interest rates on Treasuries were up across the board.  Buy TBT

The Wall Street Journal asks “Are Your U.S. Treasury Bonds Safe?”  According to the article, the cost of insuring Treasuries has doubled in the last six months.  Gross federal debt has more than doubled in the last 10 years to $12.9 trillion.  The White House projects debt will pass $18 trillion in the next 4 years.  This does not include unfunded mandates in Medicare, Medicaid and Social Security.

Investors currently can pay .34% per year to insure U.S. government bonds against default, which is $3,400 per year on a one-million dollar bond.  Gold and silver do not pay interest, but they won't be worthless because of default or inflation either.

News out today, the U.S. deficit clicked off another $120.3 billion in November to be added to the national debt.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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