You Are What You Eat
Research for Online Investors

by John Dalt

6/7/11

Any parent knows the challenges raising kids.  After four girls, I am a better man.  Albeit, more cautious with my words of criticism, but a better man.  A challenge we all face is matching our actions to our goals.  We tell our kids, if you want to be successful…you have to work hard.  You have to study to make good grades.  90% of life is showing up.  In business and life, we always want to address issues before they became problems that are more difficult to solve.

If these are good practices for each of us and our children, shouldn’t they apply to our government also?  A couple of disturbing articles make us wonder what the future holds.

USA Today headlined, U.S. funding for future promises lags by trillions.  The story relates the   “unfunded mandates” that are piling up in legislation.  Last year, the government added $5.3 trillion dollars to future obligations.  USA Today reports the total is now $61.6 trillion, about four times our annual GDP.  Add on the current $14.1 trillion in debt, wow five years of total U.S. production is committed…plus interest.

The government doesn’t report these future liabilities like we would expect.  As an investor, we would punish a company, because they would have to show the liability on their books.  We could see they were bankrupt.  The SEC would remove their stock from trading.  Federal liabilities now total over $534,000 dollars per household.  Since the government does not follow generally accepted accounting practices (GAP), they only report the current year deficit.  There is not an entry for future liabilities until the year a check is written.

The New York Times says the Oil Sands Project in Canada Will Go on if Pipeline is blocked.  We reported our State Department had to approve the Keystone XL pipeline to carry oil from Canada to the Gulf of Mexico on May 6, 2011 in Crude Oil Flux.  The Gulf region has the refineries to process the heavy oil that comes out of the tar sands.

Canada is expanding tar sands mining, and will produce more oil in the future for a long time.  The oil sands have reserves of 171.3 billion barrels of oil according to the Alberta government. Saudi Arabia has 264.2 billion barrels.  Many believe this estimate is inflated.  The Keystone XL project has been under design and waiting on approval since 2008.  Environmentalists are delaying the pipeline because they don’t like tar sands mining.  The U.S. State Department has to approve the pipeline since it crosses our border.  For all the talk by politicians about “energy independence” and securing a safe supply of oil for our economy, doesn’t it make sense to buy oil from Canada?

The reason tar sands mining will continue regardless of the stupidity in Washington is because oil will go where the customer is.  Producers are eager to supply the U.S. and have resorted to shipping by rail.  There are also alternative pipelines that can carry the tar sands oil to Canada’s Pacific coast, where it can be loaded on oil tankers.

Ronald Liepert, the energy minister of Alberta, said Canada would like to sell oil to the U.S., but “this commodity will go someplace.  I can predict confidently that…China will take EVERY DROP of oil Canada can produce.”

Who does our State Department work for?

Finally, a timely article from the U.K. Guardian, Decline and fall of the American empire.  I encourage you to read it if you have a strong stomach.  Sometimes an outside observer can crystallize our thoughts about what we already know, but deny.  The author cites the U.S. cultural decay, structural weakness and reliance on finance as indicative of a declining power.

Author Larry Elliott compares the U.S. of 2010 to Rome 200 A.D. or Britain 100 years ago.  A hollowed empire overstretched with military obligations, increasing debt by citizens to maintain an illusionary standard of living.  I disagree with some of his points, but have to agree with much of his conclusions.

Will America rise to the challenges that face us?  Can we return to the founding principles that made the U.S. a “shining city on the hill?”  I do not know.  Turning our backs on secure energy, and racking up debts on future generations doesn’t instill confidence.  I believe in the manifest destiny of the United States.  Sadly, not in our politicians.

The stock market is a reflection of the business prospects for public companies.  The economic uncertainty for business in the state of flux we find ourselves is not reassuring.

Mailbag:
Thanks for helping a Polish kid out of the woods.---Long-Term & Buy, Sell, Hold subscriber J.P.

I want to cancel.  Three of your recommendations in the Buy, Sell, Hold service are down with the market.----new subscriber S.W.

John’s reply:  I will happily refund your money.  It will be credited in the next few days.  Did you think that every one of our positions would only go up, no matter what the market did?  These three positions all be sold at a profit by our subscribers.  If not next month, then we will sell another call against them and sell them later at a profit. We have not sold a loser in over 14 months. Good luck.

Editor’s note: Subscriber T.M.(who I met at the BRK shareholder meeting) tells me Zachs used to have a great program for $2000 per year. They promised to “double your money.” Sadly, they had to change the name of this service when it didn’t quite work out that way.  If you would like to sell covered calls to make money in (almost) any market, check out our Buy, Sell, Hold service.

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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