Al Gore has been taking some heat recently for
his dual role as advocate and investor. Critics say Mr. Gore is poised
to become the world’s first “carbon billionaire,” profiteering from
government policies he supports that would direct billions of dollars to
the business ventures he has invested in.
Gore says that he is simply putting his money
where his mouth is. But is that really the case?
Here’s an excerpt from The New York Times
about one of Gore’s recent deals.
Former Vice President Al Gore thought he had
spotted a winner last year when a small California firm sought
financing for an energy-saving technology from the venture capital
firm where Mr. Gore is a partner.
The company, Silver Spring Networks,
produces hardware and software to make the electricity grid more
efficient. It came to Mr. Gore’s firm, Kleiner Perkins Caufield &
Byers, one of Silicon Valley’s top venture capital providers, looking
for $75 million to expand its partnerships with utilities seeking to
install millions of so-called smart meters in homes and businesses.
Mr. Gore and his partners decided to back
the company, and in gratitude Silver Spring retained him and John
Doerr, another Kleiner Perkins partner, as unpaid corporate advisers.
The deal appeared to pay off in a big way
last week, when the Energy Department announced $3.4 billion in smart
grid grants. Of the total, more than $560 million went to utilities
with which Silver Spring has contracts. Kleiner Perkins and its
partners, including Mr. Gore, could recoup their investment many times
over in coming years.
Silver Spring Networks is a foot soldier in
the global green energy revolution Mr. Gore hopes to lead. Few people
have been as vocal about the urgency of global warming and the need to
reinvent the way the world produces and consumes energy. And few have
put as much money behind their advocacy as Mr. Gore and are as well
positioned to profit from this green transformation, if and when it
comes.
I have no problem with Gore getting involved
with business and starting companies. Indeed, business and
entrepreneurship is the most noble of paths. But Gore is no businessman
or entrepreneur, he (like Ken Lay and Enron) is a rent-seeker. None of
his ventures would be profitable on their own without government
assistance (either in the form of direct subsidies or laws against
competing firms).
Rent seekers use political means – the
government’s authority to initiate violent aggression and fraud – to
contrive rents by preventing others from competing with them or by
forcibly taking the wealth of others. Unlike profit-seeking,
rent-seeking does not create wealth, it just transfers it from one
person or business to another. When Gore wins rents by using political
means, he is better off, but others, including potential competitors and
consumers, are worse off.
To quote Sanford Ikeda’s “Rent-Seeking: A
Primer”:
The latter [consumers] will pay higher
prices, get poorer quality, or have fewer choices because political
means are quite effective in discouraging rival entrepreneurs. The
results of rent-seeking also stifle the competitive discovery process,
so that consumers are less likely to become aware of more efficient
methods or better providers.
Thus the resources that competitive
rent-seekers spend in their quest for these politically created rents
are indeed wasted because they are used to produce an outcome in which
nothing of value is created. Indeed, rent-seeking of this kind
destroys wealth.
So Gore really isn’t just putting his money
where his mouth is. He’s putting his money, your money, and my money
where his mouth is… and destroying wealth in the process.
Gold Jumps to $1,085!
By Bud Conrad
Gold is up on the announcement that India
bought half of the proposed IMF sale of 403 metric tons. China had
appeared ready to unload some of its $2 trillion of foreign reserves for
gold, and India came out of nowhere to scoop up 200 metric tons at about
$1,042/oz.
That then drove the market higher yesterday to
$1,085 per ounce. At a profit of $40/oz, so far India has made $257
million in a couple of days. (32,150 oz/metric ton X 200 metric tons X
$40)
This is good news for India and better news
for Casey Research subscribers who have been holding gold and gold
stocks for years.
What do we expect? At the beginning of the
year, I predicted $1,150 per ounce as the end-of-year level and was more
bullish than some of the other prognosticators. I didn’t really see the
amount of selloff we saw in the middle of the year. The $1,150
assessment seems conservative considering the recent spike and the
growing mistrust of the U.S. dollar. The price is up from $930 in July
to $1,085, which is a $135 gain in four months or about $39/month. With
two more months to go, adding $78 to today’s $1,085 gets us to $1,163.
With all that is going on from Afghanistan and
Iran, to new government spending and continuing dollar demise, I think
that $1,200 is as likely as my original call.
The long-term implications of government
deficits as long as the eye can see indicate that gold will be about the
safest investment you can make.
P.S. My latest article in The
Casey Report displays charts of the historical price of
gold compared to the dollar, and the dollar to the budget deficit. They
track closely until this year where the budget deficit becomes more
extreme. The higher budget deficit suggests a weaker dollar, and the
weaker dollar suggest higher gold. The story of deficit financing
leading to the collapse of the German mark in 1923 is also in the
article. For a risk-free trial of The Casey Report,
please
click here. You won’t be disappointed.
Unique Gold Opportunity
If you’re one of those gold bugs who fear that
the government might snap and confiscate all gold bullion at some point,
you can rest more easily now.
We’ve been working on a special solution to
your predicament for the last several months. For that purpose, we’ve
partnered with the folks at ASI/First Collectors Guild, and are now
proud to present… the
Heirloom Collection, timelessly elegant 24k necklaces and
bracelets in four different styles.
You may wonder why we would go into “the
jewelry business.” Here’s why: these pieces combine the best of both
worlds – aside from making a beautiful holiday gift for your significant
other, they also have the safe-keeping and wealth-building properties of
bullion gold.
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Gold jewelry is one of the few items that
has been excluded from past gold confiscations. Plus, you won’t have
problems transporting it across a border.
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Because it’s bullion jewelry, it
has a unique tax treatment, and sales do not have to be reported to
the IRS.
-
Like gold bullion coins, you can buy these
24k, pure-gold necklaces and bracelets in increments of one ounce –
so you decide how valuable you want your piece of jewelry to
be.
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The markup is less than what you usually pay
for numismatic gold coins (which, by the way, are often only 21.7
karats, not 24 like the Heirloom items).
The prices of the necklaces and bracelets vary
depending on gold’s spot price, and they’re custom-made for you, so you
won’t find any fixed prices or “Click here to buy” buttons on the
website. For pricing and orders, call First Collectors Guild at
1-866-885-6971 and talk to them.
This unique offer is available immediately,
but quantity is limited, since the items are made to order. So if you’re
looking to give a special gift “that keeps giving” for the holidays and
want to guarantee that it gets to you before Christmas, you need to call
before the end of November – the sooner, the better.
Here’s the
link to the website again, in case you missed it above.
Own Berkshire Hathaway for Under $70
Yesterday, Warren Buffett’s Berkshire Hathaway
announced plans for a 50-for-1 stock split of its Class B shares to
facilitate the company’s $26 billion cash-and-stock purchase of the
remaining 77% of rail operator Burlington Northern Santa Fe Corp. it
currently doesn’t own. Given that the B shares are currently trading
just north of $3,400, the post-split price would be about $68.
Here’s more of the story from The Wall
Street Journal:
Such a price change would make a big
difference for retail investors who want in on Berkshire shares. Even
the Class B shares, which were created in 1996 and are structured to
cost about 1/30th the price of Class A shares, are out of reach for
most.
"In most situations, investment bankers will
say it's important to find a stock more people can buy a hundred
shares of," said Nicholas Colas, chief market strategist for BNY
ConvergEx Group. "A lower priced stock just allows more investors to
consider the asset."
Given Mr. Buffett's track record and public
stature, many investors want exposure to his business and
stock-picking acumen. The ability to attend his annual investor
meeting in Omaha, Neb., which has taken on cult status, provides no
small allure as well.
The inclusion of Berkshire on a major stock
index would broaden its investor base even further.
Standard & Poor's has eight major criteria
to be included in its bellwether index S&P 500 Index, which has about
$1 trillion directly tied to it. Berkshire has met some of the
criteria for years, including market capitalization rules and a
mandate all companies must be U.S. based.
One criteria has been an issue, however,
with S&P guidelines stating that any constituent must trade a minimum
of 250,000 shares in each of the six months leading up to the
evaluation date. Berkshire's class B shares have recently pushed to
around 30,000 shares a day after being much lower last year. So, while
they now surpass the 250,000-share full-month threshold, the stock
split will have them easily meeting the benchmark.
One issue that may leave Berkshire on the
outside is its reliance on Mr. Buffett. Index experts say the S&P 500
committee wants companies that are unlikely to face the kind of
upheaval that could be created when someone of Mr. Buffett's stature
leaves.
"It's a question of leadership. If Steve
Jobs is critical to Apple, Warren is 10 times more critical to
Berkshire Hathaway," said Mr. Colas, noting Mr. Buffett's advanced
age.
A spokesman for S&P declined to comment
about Berkshire's potential inclusion in its indexes, noting any
statements from S&P could be market moving.
For the record, I’m a little leery about
investing in Berkshire Hathaway these days. If the data I found from
Barron’s is accurate, the stock, at more than 50 times earnings,
seems overvalued. Plus, the sage of Omaha has seemed a little off his
game the past couple years, and I don’t particularly like the
collectivist rhetoric that spews from his mouth from time to time.
Nevertheless, a more successful value investor
there has never been, and picking up the shares below $70 is really
tempting. I’ll let you know what I decide.
The Worst Bill Ever?
The opinion section of The Wall Street
Journal ran a story titled “The Worst Bill Ever” about ObamaCare.
It truly is a must-read. Below is a snippet followed by a link to the
full article.
… In a rational political world, this
1,990-page runaway train would have been derailed months ago. With
spending and debt already at record peacetime levels, the bill creates
a new and probably unrepealable middle-class entitlement that is
designed to expand over time. Taxes will need to rise precipitously,
even as ObamaCare so dramatically expands government control of health
care that eventually all medicine will be rationed via politics…
If you want to read the entire article, please
click here.
Stimulus Watch
Two days ago in the article on government “job
creation,” I mentioned the Obama administration’s claim that the
government’s fiscal stimulus program has helped create or save almost
650,000 jobs so far. Well, as you might have expected, a new story out
from the AP proves that figure is highly suspect.
To quote the article:
President Barack Obama's economic recovery
program saved 935 jobs at the Southwest Georgia Community Action
Council, an impressive success story for the stimulus plan. Trouble
is, only 508 people work there.
The Georgia nonprofit's inflated job count
is among persisting errors in the government's latest effort to
measure the effect of the $787 billion stimulus plan despite White
House promises last week that the new data would undergo an "extensive
review" to root out errors discovered in an earlier report.
About two-thirds of the 14,506 jobs claimed
to be saved under one federal office, the Administration for Children
and Families at Health and Human Services, actually weren't saved at
all, according to a review of the latest data by The Associated Press.
Instead, that figure includes more than 9,300 existing employees in
hundreds of local agencies who received pay raises and benefits and
whose jobs weren't saved.
That type of accounting was found in an
earlier AP review of stimulus jobs, which the Obama administration
said was misleading because most of the government's job-counting
errors were being fixed in the new data.
That’s just fantastic. If you want to read the
whole article, please
click here.
And that, dear reader, is that for today.
David will be back with you tomorrow… but I’ll see you soon.
Chris Wood
Casey Research, LLC
