What’s the latest news? The great battle continues… Dow down 53. Gold up $23.

Up vs. Down

Zombies vs. Producers

Inflation vs. Deflation

The feds vs. the market

Expansion vs. contraction

Centralization vs. decentralization

Bull vs. Bear

And no one knows exactly how it will work out. Some are betting on a ‘recovery’ and a new bull market. Others have put their money in gold or cash…expecting more crises and more calamities.

Mr. Market is determined to deflate the debt bubble. The feds are determined to stop him. One destroys paper credits. The other prints more of them. The outcome is still in doubt.

Another way to look at this great battle –

— it’s a fight between the outsiders and the insiders. The outsiders are unruly…uncontrollable…and unpredictable. They’re the creative destroyers that Schumpeter was talking about, always finding new ways of doing things…and destroying the old ways. But in their chaotic, wham-bam approach…they actually build wealth.

 

Every new industry is created by outsiders. Henry Ford was the son of refugees from the Irish potato famine… Steve Jobs was a college dropout…who admired Edwin Land, another college dropout who invented the Polaroid film industry. Silicon chips were developed with money from potato farming.

But once the founders are gone, the insiders take over. Tech companies pass out of the control of the techies and into the control of salesmen and accountants. Business school grads take over. Their goal is not to create new wealth, but to preserve and expand their power, their status, and their wealth. They hire lobbyists to get special favors. They support laws to prevent competition. They favor regulation and licensing to keep out upstarts and give generously to politicians of both parties.

Outsiders create new wealth. Insiders protect and redistribute it — mostly to themselves.

In last week’s news was an interesting item. From John McCormack of The Weekly Standard:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.

The fact that GE paid no taxes in 2010 was widely reported earlier this year, but the size of its tax return first came to light when House budget committee chairman Paul Ryan (R, Wisc.) made the case for corporate tax reform at a recent townhall meeting. ”GE was able to utilize all of these various loopholes, all of these various deductions — it’s legal,” Ryan said. Nine billion dollars of GE’s profits came overseas, outside the jurisdiction of US tax law. GE wasn’t taxed on $5 billion in US profits because it utilized numerous deductions and tax credits, including tax breaks for investments in low-income housing, green energy, research and development, as well as depreciation of property.

“I asked the GE tax officer, ‘How long was your tax form?’” Ryan said. “He said, ‘Well, we file electronically, we don’t measure in pages.’” Ryan asked for an estimate, which came back at a stunning 57,000 pages. When Ryan relayed the story at the townhall meeting in Janesville, there were audible gasps from the crowd.

Ken Kies, a tax lawyer who represents GE, confirmed to THE WEEKLY STANDARD the tax return would have been 57,000 pages had it been filed on paper. The size of GE’s tax return has more than doubled in the last five years.

The insiders get tax cuts; the economy gets zombified. GE pays an army of lawyers and tax accountants to dig into the tax system. It strikes gold. The economy gets shafted. GE pays no taxes. The lawyers and accountants — presumably smart gals and guys — spend their time doing zombie work. Society is poorer. But the zombies get their meat.

“Wait a minute,” Elizabeth protested. “The accountants and lawyers aren’t zombies. They’re doing real work, protecting GE…which is a wealth producing business from taxes.”

“Yes…they’re honest, decent workers,” we replied. “Like many government employees. And millions of other people. They’re good people doing bad work. They may be doing it well. They may be diligent and hardworking. But they have been zombified.”

As the economy is taken over by zombies, more and more people are needed to do the zombies’ work — shifting more and more of the economy’s output to the insiders.

The insiders rig the system for their own benefit. The rigs — each one of them a form of price-fixing or central planning — weaken the system. In today’s battle, the insiders fight to protect it.

They do not want failed institutions to disappear. Instead, they want them subsidized.

They don’t want failed regulations eliminated. Instead, they want more regulation.

They don’t want to fire the failed managers; instead, they promote and reward them. Tim Geithner was head of the New York Fed. The biggest debt bubble in history grew right under his nose. Now, he’s got the top financial job in the US — Treasury Secretary. Larry Summers advised the Clinton Administration to encourage more debt, speculation, and leverage; now he’s head of Obama’s team of economic advisors.

And in Europe, the Goldman bunch — who might have been hung for sinking banks, pension funds, and sovereign nations under debt — is brought in to ‘solve’ the crisis they caused. They’ve got their men in the top job in Italy and at the European Central Bank.

The insiders’ goal is simple enough — to keep the money flowing to…well…the insiders!

The outsiders, on the other hand, don’t have a goal. They are like the OWS…or the market itself. Wild, disorganized…with unclear intentions and uncertain beneficiaries. You can’t support them…because you don’t know who they are or what they want. They’re outsiders!

The insiders represent the past. The outsiders represent the future.

And how will it all turn out? In the end, the future will come…whether we like it or not.

 

What’s the latest news? The great battle continues… Dow down 53. Gold up $23.

Up vs. Down

Zombies vs. Producers

Inflation vs. Deflation

The feds vs. the market

Expansion vs. contraction

Centralization vs. decentralization

Bull vs. Bear

And no one knows exactly how it will work out. Some are betting on a ‘recovery’ and a new bull market. Others have put their money in gold or cash…expecting more crises and more calamities.

Mr. Market is determined to deflate the debt bubble. The feds are determined to stop him. One destroys paper credits. The other prints more of them. The outcome is still in doubt.

Another way to look at this great battle — it’s a fight between the outsiders and the insiders. The outsiders are unruly…uncontrollable…and unpredictable. They’re the creative destroyers that Schumpeter was talking about, always finding new ways of doing things…and destroying the old ways. But in their chaotic, wham-bam approach…they actually build wealth.

Every new industry is created by outsiders. Henry Ford was the son of refugees from the Irish potato famine… Steve Jobs was a college dropout…who admired Edwin Land, another college dropout who invented the Polaroid film industry. Silicon chips were developed with money from potato farming.

But once the founders are gone, the insiders take over. Tech companies pass out of the control of the techies and into the control of salesmen and accountants. Business school grads take over. Their goal is not to create new wealth, but to preserve and expand their power, their status, and their wealth. They hire lobbyists to get special favors. They support laws to prevent competition. They favor regulation and licensing to keep out upstarts and give generously to politicians of both parties.

Outsiders create new wealth. Insiders protect and redistribute it — mostly to themselves.

In last week’s news was an interesting item. From John McCormack of The Weekly Standard:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.

The fact that GE paid no taxes in 2010 was widely reported earlier this year, but the size of its tax return first came to light when House budget committee chairman Paul Ryan (R, Wisc.) made the case for corporate tax reform at a recent townhall meeting. ”GE was able to utilize all of these various loopholes, all of these various deductions — it’s legal,” Ryan said. Nine billion dollars of GE’s profits came overseas, outside the jurisdiction of US tax law. GE wasn’t taxed on $5 billion in US profits because it utilized numerous deductions and tax credits, including tax breaks for investments in low-income housing, green energy, research and development, as well as depreciation of property.

“I asked the GE tax officer, ‘How long was your tax form?’” Ryan said. “He said, ‘Well, we file electronically, we don’t measure in pages.’” Ryan asked for an estimate, which came back at a stunning 57,000 pages. When Ryan relayed the story at the townhall meeting in Janesville, there were audible gasps from the crowd.

Ken Kies, a tax lawyer who represents GE, confirmed to THE WEEKLY STANDARD the tax return would have been 57,000 pages had it been filed on paper. The size of GE’s tax return has more than doubled in the last five years.

The insiders get tax cuts; the economy gets zombified. GE pays an army of lawyers and tax accountants to dig into the tax system. It strikes gold. The economy gets shafted. GE pays no taxes. The lawyers and accountants — presumably smart gals and guys — spend their time doing zombie work. Society is poorer. But the zombies get their meat.

“Wait a minute,” Elizabeth protested. “The accountants and lawyers aren’t zombies. They’re doing real work, protecting GE…which is a wealth producing business from taxes.”

“Yes…they’re honest, decent workers,” we replied. “Like many government employees. And millions of other people. They’re good people doing bad work. They may be doing it well. They may be diligent and hardworking. But they have been zombified.”

As the economy is taken over by zombies, more and more people are needed to do the zombies’ work — shifting more and more of the economy’s output to the insiders.

The insiders rig the system for their own benefit. The rigs — each one of them a form of price-fixing or central planning — weaken the system. In today’s battle, the insiders fight to protect it.

They do not want failed institutions to disappear. Instead, they want them subsidized.

They don’t want failed regulations eliminated. Instead, they want more regulation.

They don’t want to fire the failed managers; instead, they promote and reward them. Tim Geithner was head of the New York Fed. The biggest debt bubble in history grew right under his nose. Now, he’s got the top financial job in the US — Treasury Secretary. Larry Summers advised the Clinton Administration to encourage more debt, speculation, and leverage; now he’s head of Obama’s team of economic advisors.

And in Europe, the Goldman bunch — who might have been hung for sinking banks, pension funds, and sovereign nations under debt — is brought in to ‘solve’ the crisis they caused. They’ve got their men in the top job in Italy and at the European Central Bank.

The insiders’ goal is simple enough — to keep the money flowing to…well…the insiders!

The outsiders, on the other hand, don’t have a goal. They are like the OWS…or the market itself. Wild, disorganized…with unclear intentions and uncertain beneficiaries. You can’t support them…because you don’t know who they are or what they want. They’re outsiders!

The insiders represent the past. The outsiders represent the future.

And how will it all turn out? In the end, the future will come…whether we like it or not.

Regards,

Bill Bonner
for The Daily Reckoning

 

Bill Bonner

 

 

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

You Could Build FIVE GENERATIONS of Wealth! The full power and promise of science’s next decade could create vast fortunes. Wealth opportunities are already piling up. Watch this urgent new presentation for full details on how to start your own wealth. Epic wealth revelations – Right Here…

Read more: Differing Views of Wealth: How Insiders and Outsiders Approach the World of Money http://dailyreckoning.com/differing-views-of-wealth-how-insiders-and-outsiders-approach-the-world-of-money/#ixzz1ecsmz1Mm

Mark Leibovit’s Daily Gold Comment

More information on Mark’s services is available at http://www.vrtrader.com/login/index.asp

GOLD – NEUTRAL
Gold nosedived to 1665 intra-day on Monday and predictably bounced back to 1700s yesterday. With minor exceptions volume remains somewhat negative. So, though I’m a big-picture BULL, I prefer to sit this one out on the sidelines awaiting further confirmation of a bottom. Downside risk is still to 1600 or even lower. That said, you know I have never advised selling your physical metals. Primarily, I feel the day is not far away when you will not be able to get your hands on or will be prevented from acquiring the physical metals. I thought silver acted particularly well yesterday – demonstrating some healthy upside volatility. You should be dollar-cost-averaging both silver and gold in preparation for the explosive upside moves ahead. These moves could begin at any moment whether that moment is two days away or six months away. You’ve got to get into the game! When the party resumes, it will be a sight to behold.

 

Is Gold Still the Answer for Investors?

“There is no reason to fear gold pullbacks and every reason to expect even more positive returns in the gold mining stocks that are still catching up to the rapid gold rise.”

 

 

Debunking Myths and Talking Long-term Shale

 

Companies can’t make decent returns with $3-4 natural gas prices, is the rumor. But after listening to a few industry leaders at this year’s Developing Unconventional Gas (DUG) conference, that rumor is far from the truth…

“Economic even in today’s gas prices”

“Gas investments are appealing [and] we don’t go into anything where we won’t make 40%”

“60% return at $3 gas price….all in”

“There are some sub-$3.50 breakevens”

“Marcellus wet has the lowest threshold, below $3 you can still make 10%”

The comments above came directly from four independent company CEOs and one investment research firm representative.

The connecting thread is simple: even at current prices or lower producers can still make money in the Marcellus and Utica shale gas formations.

 

Although a year or so ago it was considered impossible to make money in shale gas with under $4 gas, nowadays it’s clear that you can. This simple change in logic has a huge impact on the shale gas investment space and your ability to turn a profit in this sector.

For starters it shows that the Marcellus and Utica plays are massive in size and quality. I’m convinced that the marginal price of putting on more wells just isn’t what it cost, say, two or three years ago.

With lower prices, producers have more room to make a profit — especially when you add in the “wet” gas side of the equation.

The second takeaway from this change in logic is that, yes, natural gas prices STILL look to be headed lower. If lots of companies can make money at $3-3.50 gas then we know sure as heck they are going to be drilling like crazy.

More drilling will lead to lower and lower prices. In the future the low-cost wet-gas rich companies will prevail. Not to mention end users of natural gas will be winners (steel producers, chemical producers, fertilizer producers and you and I in our natgas-based electric bill.)

For the time being, and now going into the cyclical high-season for natural gas prices don’t be swayed by a myth that producers can’t make any money on this gas. Because as I’ve been told, more than thrice, they can (and have been.)

Now, let’s change subject and talk depletion…

Another major myth about shale gas is that the depletion rate on these wells is much higher and quicker than conventional oil and gas wells.

To be honest there aren’t enough hard statistics from the Marcellus/Utica to make a concrete judgment — and that’s why it’s important to nip this myth in the bud.

Yes, depletion rates — the yearly decline of well production that can determine the life of a well — could be lower than conventional or other U.S. shale plays. But the truth of the matter is that we don’t know.

That’s when I found out about a secret weapon that can put the depletion argument to rest…

In a long talk I had with a tech-expert from Halliburton, a worldwide oil and gas service leader, we touched on the subject of “re-fracking.” The idea, as the engineer explained was that it’s possible that the depletion rates for the Marcellus could be a result of the lifecycle of the frack.

In essence when you go in and pressurize a well and fracture it those tiny fractures may not say open forever — even with the propping sand and such. Instead, as this insider told me, the shale at that depth is a little more like putty than, say, granite (this varies throughout all different formations.)

So it’s not as if the well is depleted and dry, it’s just that the “earth putty” has slowly recaptured and closed those production-zone fractures.

This is an interesting idea, if he’s correct service companies could go in and re-complete and re-fracture each well to get it back online.

In the Marcellus this idea is brand new. But re-fracking, along with more outright drilling, could easily keep production in this area growing. And in the decades to come I believe this technology along with newer tech will keep these wells pumping.

Like I said above, the depletion argument is still up in the air. But this gives us something interesting to look at in the years to come — and more positive reinforcement to look at the service companies as a strong investment.

Right now life is good for the drillers, producers and service companies. I take the stance that things will continue to be good in the next few decades…if depletion rates don’t play a major factor than I wasted time talking about this myth…. But if they do play a big factor I believe technologies like I covered above will be able to keep the natural gas needle moving in the right direction.

That’s all for now, have a great holiday.

Keep your pilgrim shoes muddy,

Matt Insley

P.S. With Monday’s market pullback now’s a great time to grab a few of the best names in the oil and gas sector. In fact, out of the top oil service providers out there three need to be in your energy portfolio. If you’d like a full write-up on this oil service “trifecta” along with several other active plays that are happening in the Marcellus, sign up here.

When the clock strikes midnight on December 31 this year, many traders, fund managers and individual investors will be glad to ring in the New Year and hopefully better profits in 2012. This year has proven to be a challenge for even seasoned traders who have been trying to ride the volatility wave and constantly changing fundamental news out of Europe and elsewhere.

Everything from gold and oil to base metals and coffee, have been on a roller coaster ride that doesn’t seem to end. However one group of commodities that could be poised for a strong rebound in 2012 is: The grain markets!
 
Grain Price Rebound Likely

The grain markets have not been spared the extreme volatility in 2011. And prices for corn, wheat, and soybeans have fluctuated wildly. The USDA reported better than average crops, and the weak global economy all weighed on prices for the second half of 2011. But all that could change dramatically in 2012 as demand is likely to pick up with emerging markets continuing to buy more and more grains … especially soybeans.

Even banking giant UBS is suggesting 2012 could be a very good year for grains. UBS rated farm commodities with high-yield credit and hard-currency emerging market debt, as the asset classes in which it recommended an overweight rating.

 

 

While banks are keen on agriculture as a potential highly profitable sector in 2012, farmers are facing much higher input costs.

According to reports, Purdue economists Bruce Erickson and Alan Miller say “growing corn, wheat, or soybeans next year will likely cost much more than it did in 2011.” In the latest Purdue Ag Economics Report they outline many of the increases in crop input costs that farmers will have to budget for the coming crop year.

 

Inputs like fuel, fertilizer, seed costs, and more, are going up exponentially. And at the end of the day the futures prices will reflect that. One input cost that is going up faster than any other, is rent! Cash rents that some farmers pay for the land they grow their crops on, will likely see a big jump of another 12 percent, the same increase seen a year ago.

Overall, the added costs are going to put an incredible burden on farmers … consequently the prices you pay at the neighborhood grocery store are sure to skyrocket.

Unique Ways to Put the 
Grain Markets to Work for You

You can take advantage of agriculture price increases by buying corn, soybeans, or wheat futures and options or an ETF like DBA.

Another idea is to consider buying shares in some of the key companies supplying much of these inputs …

Companies such as Monsanto (MON), Agrium (AGU), Potash (POT), as well as farm equipment makers like Deere (DE). In addition, some of the seed companies may also be very good prospects to look at. Companies like Syngenta (SYT) are sure to benefit as agriculture prices rise. These are the kinds of companies Sean Brodrick and I uncover, and closely monitor, for our Global Resource Hunter subscribers.

Agricultural commodities can often stay very strong, even in down markets. After all, everyone has to eat! So look for a few good agriculture plays for your portfolio to help you “grow” your wealth in 2011.

Regards,

Kevin Kerr