"Hamas” is Arabic for “Cowards”

The world press is at it again – denouncing Israel for the unpardonable sin of actually fighting back against a more populous, better-financed, and clearly depraved enemy. After enduring, on some days, literally hundreds of random rocket attacks, which showed no signs of abating as long as the region has oil profits to recycle into rockets, Israel, after warning Hamas what they must do, did it.

Did those brave-in-anonymity Hamas fighters proudly rise to the battle? Nope. They hid out in schools, mosques and hospitals, using the sick, the elderly, and their own children to shield them, and recycled photos of past retaliations to “prove” how inhumane the Israelis are.

War is hell. Start one and you’ll find out. If there were an ounce of brains among the Hamas leadership, they’d know better than to awaken a docile adversary willing to live in peace. If there were an ounce of gumption and common sense, they’d accept shared administration of holy sites and then get on with the business of growing a nation rather than living on the world’s doorstep, begging for money to correct perceived wrongs that never were. And if they had an ounce of courage, they wouldn’t poke the anthill repeatedly until finally the ants sting them, then go running home to Mama crying that they were innocently passing by and them mean old ants lashed out at them for no reason.

Hamas: The Scarecrow, Tin Man, and Cowardly Lion of the real world.

"Putting today's market in perspective" 29 Sept 2008

In 2004, the Dow was up 329 points. For the year.

In 2005, it was down 65 points. For the year.

In 2006, a great year in which the Dow returned a stellar 16%, it was up 1745, and last year it added another 802.



Today’s action alone, even if we hadn’t had a bear market this year prior to today, would have wiped out nearly all of last year’s gain. The Dow was down 777. Add that to the 2123 it was already down for the year and you come away with about a 2900-point, or 22%, 2008 decline.



Why did it happen? What happened to your portfolio? Where do we go from here?



Why? The media will report it is because the House of Representatives failed to approve the bailout plan that Hasty Hank and Benevolent Ben assure us must be approved ASAP or it will be the demise of Western civilization.



I believe a further reason for such a sweeping decline might be a bit more Machiavellian. Program trading can move markets – especially after the Fed, Treasury and SEC agreed last year that we no longer needed the volatility “collars” that have served us well since the crash on October 19, 1987. The SEC also did away last year with the “uptick rule” that, since 1938, had prevented selling short during free-falls such as today. If Wall Street is responsible for flying this aircraft into the ground, the SEC, Fed and Treasury must share responsibility as the air traffic controllers that so screwed up they effectively greased the way. I’ve been writing since October this was inevitable, I just didn’t know when it would happen. Wall Street, desperate for a bailout from you and me, pouted and shouted and beat their fists on the floor. My friend, competitor and very smart guy in the newsletter business Sy Harding identified the big program trading houses recently -- Goldman Sachs, Credit Suisse, Morgan Stanley, Merrill Lynch, Deutsche Bank, RBC Capital, BNP Paribas, SIG Brokerage LP, and UBS Securities being the biggest. These are the same folks who helped propel us into this mess and whom the government now wants to hire to get us out of it. It’s quite easy for them to throw their program trading weight into the fray, selling short where they may (anything but the financials, of course) and selling outright what they can’t short -- in massive multi-million share lots to “augment” investors’ nervousness today.

Whichever explanation you prefer, and the truth may well be in the middle, “why” isn’t as important as the other two questions:



What happened to your portfolio? Nobody escaped today. At our firm, Stanford Wealth Management, we had already (a couple days too early, in retrospect!) taken all profits from our short hedges, so we found little or no relief there. And every sector was sold across the board. Normally, on a day with this kind of news, anything tangible would have withstood the onslaught best. With the US dollar receiving a no confidence vote around the world, what I call “anti-dollars” – things in the ground that will have absolutely certain future demand (if we want to eat, build a shelter, or motate) like coal, oil, agriculture, gold, iron, natural gas, silver, platinum, uranium, et al – would rise or at least stay relatively steady. Not today. A year’s worth of careful positioning in solid natural resources, food, and so on just got sent down the tracks along with the whoo-hoo-let’s-make-up-some-new-kind-of-worthless-derivatives companies. Every sector. Every stock.



Where do we go from here? Finally, some good news. Markets never go in only one direction. Trees don’t grow to the sky and bargains don’t stay bargains for long. We now own coal companies that were yielding 6% last month and are yielding closer to 12% today. These firms are showing record earnings so those dividends are safe or likely to be raised. We may not own three houses (courtesy of liar loans), any more, but we’re darn sure going to heat the one in which we live. To do that this winter, 85% of us are going to need coal, natural gas, or oil. (All but a smidgen of the other 15% are served by utilities that need to buy uranium.) I’m thinking we’re not going to sit there shivering in the dark and we’re not going to starve while we shiver to death. That bodes well for food companies continuing to increase their earnings. And as the dollar shrinks in value (who wants to own a debased currency?) the value of all resources, and most especially the portable, hard stores of value like diamonds, platinum, gold and silver will rise as well. Resources, food and metals is where I have positioned us going forward. I don’t see anything more than a relief rally when the bailout plan is finally passed. It will be. It may be a shadow of the original “I’m in charge here” plan; it may or may not do the job it was intended to do; it may have to be changed to include some common sense proposals like both equity ownership and regular loan repayments directly to the American taxpayer; but something like it will be passed. It doesn’t change my strategy for the immediate future. All stocks -- ultimately -- will recover. But I believe those most worth buying are in the sectors discussed above. And while some other sectors may strike investors’ fancy and provide better returns, the risks in trying to find that one hot sector are just not worth it. I’m sticking with value.

THE TWIN I-BEAMS OF INVESTMENT SUCCESS

I've been asked by a number of readers for my thoughts on the financial "crisis" in America and how to protect ourselves from it. For at least the next couple years, I think the advice from our investment publication "Investor's Edge" this month is most timely:

This month’s issue may be one of the most important in our long history, along with calling the top on the dot-com silliness three months before it began its death spiral, our analysis on the impossibility of oil staying at its then-price of $20 a barrel (and the energy investments we made to benefit from that call,) and our decision to hedge on the downside in October of 2007 just as the market was roaring through 14,000. We saved and then made money from all those decisions, and I believe what I am about to discuss with you will do the same.

Virtually no one seems to understand that a sea change has taken place in the US and world markets this year. Most people treat this pullback as an interruption in the pleasant dalliance of making money on borrowed money, whether on margin, from their home equity, by buying other essentials on credit cards, or whatever, as the markets, US and foreign, went ever-skyward. I’ve been out of sync with that group as I declared the onset of the bear in our October issue and have never wavered in that analysis. Now that most other analysts are in reluctant agreement that we are in a bear market — with some even admitting we are in an economic recession, whether we call it that or not — they are anxious to “get on with it.” Their attitude by and large seems to be “let’s shake out the weak sisters, finish the bear, and go back to the much more enjoyable business of making money.” The debate already seems to be focused on “in which month will the market turn?”

I submit to you that this is just plain wrong. This is one of those rare turning points where the entire game has changed. For those too young to have missed the markets of the 1960s and 1970s, these will be uncharted waters. For those who hope to forget those days, it will be murky. But for those willing to learn from the past, our way forward will be defined, if not always crystal-clear. The dot-com bubble and the housing bubble are pikers — the real bubble that is now bursting is The Great Debt Bubble of the past quarter-century. It’s bursting will create massive opportunities for the aware — and will wipe out fortunes for those who don’t understand the new rules. Most analysts believe that there are short-term credit excesses solvable within a couple years even without government intervention. I, on the other hand, believe this is a long-term problem that will change the investing landscape for years to come.

Cheap credit was a drug foisted upon us by a Fed unwilling to take away the punch bowl — as the markets would have done if left alone. Business people do not typically seek out unusually high and unsustainable levels of risk — but when the Fed aids and abets it, indeed, places you at a competitive disadvantage if you don’t avail yourself of it when all your competitors are doing so, you’d best go along. Under Fed chairman Greenspan, this created the illusion of economic success when in reality it was nothing more than the drug of cheap borrowing.

As a result of this, it’s hangover time. I believe there are massive debt inventories that must be liquidated, over-investment in weak holdings thanks to easy credit, and overcapacity in too many industries because easy money allowed rampant expansion in anticipation of rather than in response to increased demand. In earlier times, this combination of easy money self-corrected when lenders got nervous. After all, it was their money at stake. But when it is the Fed and the Treasury fomenting it, what’s to be nervous about? It’s the taxpayers’ money, so the bureaucrats have no skin in the game.

Today our government has the means to spend the economy out of its troubles. We can print money (debasing our currency, of course) and create public works that will inject capital into the economy at a time when business and consumers are simply unable or unwilling to do so. The current administration has signaled its willingness to leap in with our (taxpayer) dollars and save cronies on Wall Street and in banking. This doesn’t provide the necessary surgery for the patient, it only staunches the flow of blood — for awhile. It’s a dreadful first step because it reinforces, and even rewards, irresponsibility in corporations and in government. But to profit from this, we must do more than complain. We must recognize that this first step is the harbinger of many more. Having used this medicine once, the Fed and Treasury will use it again. However, they cannot afford, politically or fiscally, to bail out any more old friends. The money taken out of taxpayer’s pockets cannot go to pay for billions of dollars in bonuses at firms that are madly trading (with each other!) but are contributing absolutely nothing to the asset side of the public ledger. For that reason, I will continue to avoid, or short, big banks and brokers like CITICORP, BANK OF AMERICA, MERRILL LYNCH, LEHMAN BROS, and WASHINGTON MUTUAL. I may not avoid but I will also use a fine-tooth comb to analyze any company that has done as the Fed induced it to do and laid on massive debt to leverage the balance sheet.

There will be short-term rallies but, as Ralph Wanger noted, “There’s never just one cockroach in the kitchen.” (Or, it seems, in the executive suite.) The banks and brokers’ financial problems run deep. I predict many more “disclosures” before either have turned the corner to real profitability based upon real assets and real earnings from conducting their real businesses instead of shilly-shallying around with Stuff Nobody Understands, Including the Inventors.

Does this mean I am going to step aside for the next few years — that’s right, years it may take to unwind from this bacchanalia — and sit in cash? No way! I see two inevitable results of the unwinding of this lunacy. That’s why the structure of our portfolios going forward the next year (or more) will rest upon two steel I-Beams:

(1) Inflation and

(2) Infrastructure

Try as I might, I can think of no way out of this mess that is not deflationary for the dollar and inflationary for the rest of us. Yes, the usual catechism is that recessions nip inflation in the bud because people buy less things. But that only addresses the demand side of inflation. The supply side comes from too many dollars out there — and printing lots of dollars is what it will take to get us out of this mess sooner rather than later. In previous recessions, we could honestly say, “When the US sneezes, the rest of the world catches a cold.” But today, even as the developed world labors under this credit kerfuffle, China, India, Brazil, , Russia, Indonesia, et al, will continue to move from bicycles to motor scooters to automobiles and from rice to fish to meat. Food and energy prices may retreat from their current levels — temporarily, as they have in July — but they aren’t going into disinflationary territory! And if I’m correct about my second I-Beam, we aren’t going to see serious drops in the prices for iron, steel, zinc, copper, asphalt, cement, timber, or any other building material, either.

If there is any one area that the US government desperately needs to invest on behalf of the American people, it is in infrastructure. By infrastructure I mean everything from rebuilding military equipment that is worn down, used up, and literally has sand in its gears, to crumbling bridges, potholed roadways, a decaying power transmission system, and leaking-like-a-sieve water transmission and storage facilities. These are BIG-ticket items that often transcend any one state’s bailiwick. We would have to repair this collapsing infrastructure, anyway. It’s better to let the Feds throw money at something worthwhile for a change, instead of to whatever the 47,000 registered lobbyists pay them to throw it at. That’s what happened when Fannie and Freddie’s lobbyists came a’callin’ and convinced Congress to let them lend *30 times* their asset base (now 33 times with the latest bailout,) rather than the 10 times that had so “constrained” them until recently. What kind of time frame am I looking at? What does it matter, since there will be money to be made betting on inflation — shorting Treasuries, buying gold, etc. — and buying infrastructure — water, gas, wind, solar, cement, food, etc.? However, if we are looking for a time frame, it may help to note that Japan has taken some 20 years to finally rehabilitate its corporate balance sheets. I believe we have a younger and more entrepreneurial workforce, greater size, considerably more natural resources, and numerous other advantages over Japan. Still, I imagine it will take a few years for the US economy to once again be healthy. Since the markets are a leading, not a coincident, indicator, I imagine the market will respond as soon as it sees real progress. For that reason, I won’t speculate on the time it may take for plays beyond inflation and infrastructure to be worthwhile. I believe it will be at least another year. I plan to make hay with the twin I-Beams during this time and assess the situation anew each day to see if there is meaningful change.

For now, I’ll stay defensive. Simplifying the focus of our inquiry and protecting what you have are the most important steps right now. Making money from our I-Beams should follow. If I’m correct, the “throwing in of the towel” that I’ve spoken about in previous issues is likely to occur in 2008 and 2009. People will increasingly stop saying impatiently, “Is this the bottom? Should I buy financials and housing now?” Still weaker retail sales, lower capital spending by industry, job losses, credit card defaults, and a shadowy sense of doom is the way most bear markets end. They end with a whimper, not a cataclysmic down day during which we all sing “Happy Days are Here Again.” If I’m correct, you won’t be fooled. Investing in the I-Beams will have protected you. < >

REMEMBRANCE AND RESPECT -- International Affairs

My wife and I just attended the Armistice Celebration in Paris, called Remembrance Day in the UK and Veterans Day in America. Though it may be called a celebration, celebrating the end of madness, destruction, and the deaths of an entire generation of young men in Europe, it is a somber event. It took place at the Arc de Triomphe.

We were stunned to see people walking back and forth during the playing of La Marseillaise (the French national anthem, so stirring that, when it was first played, some 400 men are alleged to have been inspired to enlist) and during President Sarkozy’s solemn remarks just a little ways away.

And it wasn’t just clueless foreigners. Many Frenchmen, and, sadly, almost every French Muslim that we saw that day simply paid no mind nor any respect as they went about their business, some clearly annoyed that the crowds were blocking their passage. I hope Sarkozy’s pride in the nation of France begins to affect some of these people. I shudder to think what becomes of a nation where etrangers -- foreigners -- like us stood at respectful attention during their national anthem (and would have saluted proudly had the US flag passed in review) while some Frenchmen find it an inconvenience or an affront to their (sub-)culture to show respect to those who died so they could ignore simple courtesies and yammer on their cell phones during such a solemn moment. The harbingers of societal change are often silent and hinge on such subtleties as these. Perhaps the fact that enough Frenchmen voted to elect Sarkozy says they, too, are disgusted by such displays.

Perhaps they are also disgusted by the socialist take-care-of-me sense that infects some of their countrymen, as well. The day we left Paris for Tuscany, the leftist French unions, especially the public service (a non sequitur if ever there was one!) unions, declared a general strike to protest a little common sense that President Sarkozy is attempting to inject into the economy. He’s not touching the sacrosanct 37-hour work week or the 2 years’ severance one gets if they are fired (yes, even for cause) or any of the other socialist schemes that are destroying the fabric of French society. No, all he wants to do is abolish special rules that allow bus and train drivers to retire at age 50. With full pension. For life. I, for one, wish him much success.

THE US DOLLAR -- International and Financial Affairs

My wife and I are traveling in France and Italy this fall, visiting some companies I am considering as investments and enjoying the countryside along the way. But one thing leaps out at experienced travelers like us, accustomed to a much stronger US dollar, a currency once both respected and desired.

When Treasury Secretary Paulson claims US policy is to support a strong dollar, even the most inexperienced European truck driver and waiter knows he is lying. Any one of them will remind us that a lousy US dollar exchange rate means fewer US citizens traveling and spending their money beyond US borders, more foreign nationals spending their money in the US, and more exports from the US to the rest of the world. Of course, we’ve reached the point of embarrassment now where, if you were to run out of Euros on a Saturday and ask if you can pay in dollars, you’d likely be refused because no one wants to hold a third-world nation’s declining currency over the weekend.

Although those of you who read Investor’s Edge know I recommended selling the dollar via a Weakening Dollar mutual fund two years ago – and paid for this holiday from those profits – I did so as a realist, knowing this administration was squandering our parents’ savings and spending our grandchildren’s inheritance. I take no joy in seeing my country’s currency debased. The sticker shock facing Americans who travel to parts of the world with a strong currency is total.

Fortunately,over the years we have accumulated many, many Hilton and Hyatt points, earned when the dollar was strong, which we can, effectively, forward arbitrage into free nights’ lodging now! But it's still wrong. No nation should so debase its currency that no respectable business wants it. Stop the madness. Strengthen the dollar by creating a creditor, rather than a debtor, nation. Have we fallen so far we cannot see this -- and elect responsible leadership that understands it, as well?

If...

Those of us of a certain age had the privilege to be forced to memorize certain poems as part of our education. I posted this one in my August 2007 issue of Investor's Edge, with only the foreword in brackets below by way of introduction. But it applies to Financial Affairs... Military Affairs... National Affairs... International Affairs... and, certainly, to Personal Affairs, as well.

[This is all you need to know -- or need to do If... you are to be a successful investor over time...]


If...
Rudyard Kipling


If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;

If you can wait and not be tired by waiting,
Or being lied about, don't deal in lies,
Or being hated, don't give way to hating,
And yet don't look too good, nor talk too wise:

If you can dream - and not make dreams your master;
If you can think - and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;

If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build 'em up with wornout tools:

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;

If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: 'Hold on!'

If you can talk with crowds and keep your virtue,
Or walk with kings - nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;

If you can fill the unforgiving minute
With sixty seconds' worth of distance run -
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man my son!

De Oppresso Liber

SHOULD WE GO TO WAR WITH IRAN? -- National Affairs

It looks as if we are going to hear a lot of saber-rattling coming from the same covey of chicken hawks who eschewed the CIA, DIA and allied intelligence services' analysis of Iraq back in 2002. This time the target is Iran. There is no argument that Mssrs. Perle, Kristol, Feith, Wolfowitz, Rumsfeld, Cheney et al could make that holds a thimbleful of water in favor of putting ground troops in Iran. There is one reason, and one reason only, to attack selected Iranian targets. That is to ensure the Mad Mullahs currently dictating in Iran don't get the ability to develop and deploy nuclear weapons. The attack, if it comes, would be surgical in nature, or as surgical as one can be when a government exploits our good nature and common decency by placing nuclear materiel and equipment in mosques, "schools," and "hospitals." Otherwise, no dice.

This time around, we might want to listen to the CIA, DIA, the DGSE and the BND (France's General Directorate for External Security and Germany's Bundesnachrichtendienst, those nations' equivalent of the CIA, both of which have far better connections in the Middle East than we do) as well as the Mossad, the best-connected and best-placed of all. All of these, especially Israel, share the US's concern that the apocalyptic madmen currently running Iran do not get their dirty little hands on The Bomb.

Absent that intelligence, however, we must accept the simple fact that Iran currently poses little threat and that Iranians, having endured nearly 30 years of this mullahrky, are fed up with it and ready to move on. The promised utopia has become a dystopia and Iranians aren't happy about it. If the US stops poking them in the ribs every time the President's popularity takes a dip in the polls, this regime will fall of its own weight from within. (...Leading the current administration to declare it was the "pressure" they placed on Iran from Iraq that led to the downfall, no doubt! Who needs the funny papers when we have Vice President Cheney?)

Why do I believe Iran will fall from within? This website is the nexus of military, national, and financial affairs. In the case of Iran, it's all about the economy, stupid. One of the world's youngest populations is looking for honest work. And it just isn't there. Because Ahmadinejad truly believes that The End is Near and that the 12th Imam (the Mahdi) is coming to earth any day and the Apocalypse against the Jews and the Crusaders will be joined and won. He's as nutty as all those Christian sects that gather by the river and drink Kool-aid when the Savior doesn't appear on schedule, which is to say he's nutty as a fruitcake. From an economic standpoint, this nuttiness manifests itself in massive spending to develop the means to kill Jews and Crusaders -- at the expense of providing jobs, education or health care for the people of Iran. When rulers forget their job is to provide for the defense and welfare of the nation, their days are numbered.

The really sick part of this is that, thanks to declining supplies and thus rising oil prices, Iran is bringing in an extra $100 million a day -- and has been for a year. When elected 2 years ago, Ahmadinejad promised to "bring the country's oil money to every family's dinner table." All he's brought instead is inflation (currently running about 18%,) unemployment (hovering just north of 30%,) and growth that has declined all the way down to 3%.

This in a country with the 2nd-largest reserves of natural gas and the 3rd-largest reserves of oil in the world. Can you imagine what American ingenuity and entrepreneurship could do if the US had those kinds of reserves? Well, those wellsprings of ingenuity and entrepreneurism are in Iran, too. And the people are fed up. Into this milieu Ahmadinejad's solution is "khodkafa'I" (self sufficiency.) In a nation that has always regarded trade as a noble calling, Ahmadinejad demands that "Islamic purity" be maintained by avoiding commerce with foreigners. (Except for oil, of course. He's stupid, but he's not that stupid.) This job- and work-destroying khodkafa'I will be the death of the Islamic Republic of Iran and see the rebirth of the true Iran, much to the benefit of the Iranian people.
What can we do to hasten the demise of this albatross on the Iranian people? Nothing. Patience is a virtue that US leaders are too often denied at birth. Taking the long view is not something our nation is particularly good at. But if we watch like hawks the nuclear weapons development, prepared to destroy it before it reaches fruition, and otherwise let the house of cards fall in on itself, without saber-rattling, without rib-poking, without clucking I-told-you-so's, we just might see a positive development in the Mideast in spite of our own ineptitude.

An Open Letter to Lt Col Ralph Peters, USA, Ret -- Military Affairs

Dear Col Peters,

Your writing is always thought-provoking and I often find myself in violent agreement with what you say, but most recently you are way off base, no pun. Your paean to United States Army and Marine Corps personnel is well-deserved and spot-on, but your diatribes against the United States Navy and, particularly, Air Force, couldn’t be more divisive and inaccurate. (“If you go into the Pentagon these days, you'll find only half of the building is at war.”) This is not a time to bash one service versus another. Together, we are one hell of a team. Trying to drive a stake through one part of the body harms the entire body. We aren’t at war with each other, but with a vicious, determined and resourceful enemy. We need all our brainpower and all our resources pulling together to assure that we do our job of protecting the American people.

I began my career in the US Army, first with 4^th PSYOP, with frequent attachment to 7^th and 10^th Special Forces; then earning my 5^th SF flash; then with the 20^th SF. I imagine there has never been a more beautiful sight than a US Air Force AC-130 Spooky gunship coming in low over the trees to create a more “stable” defensive perimeter. In Desert Storm, there was no more reassuring sound than an A-10 Warthog coming in fast (well, fast for a Warthog…) and low to place a heavy round through the turret of a T-72 Russian-supplied Republican Army tank. And lest you or anyone else mistakenly believe that those aircraft had utility only because they flew in a Close Air Support role, the reason they could provide that close air support is because the United States Air Force is willing to provide top cover for their operations – literally. The Air Force is not satisfied with Air Superiority or Air Supremacy – the Air Force demands and achieves Air Dominance: crushing and conclusive air power that leaves an enemy air force afraid to take to the skies and, if they should muster the courage, unable to take offensive action against the ground force components of the great team we call the US Armed Forces.

I spent the rest of my career in the Air Force Reserve Intelligence community (and the active Air Force when mobilized for Desert Storm, Kosovo, and early OEF/OIF.) I do not support or reject any service or weapon system out of hand – or out of a blind allegiance to one branch of the service. I will say, however, that, while Counterinsurgency and Counterterrorism are my first disciplines, I or anyone else would be a damn fool to believe the only wars we will fight in our lifetime will be similar to those in Afghanistan and Iraq. As a nation, we fell into that trap at the end of the Cold War. The commander whose “motivational speech” I had to endure pre-deployment for Desert Shield / Desert Storm groused that this war in Iraq was playing hell with his ability to field a Human Intelligence capability against the “Soviet” agents in the United States. (This after the dissolution of the Soviet Union.) It’s easy to get locked in to a mind-set that the war we are fighting is the way it is and ever will be. I don’t think so.

Let’s just say, for instance, that Iran is able to field a nuclear weapon. Let’s say, further, that they couple that feat with a dependable intermediate-range launch capability, the rudiments of which they already possess. If I were President, would I want a million US Soldiers and Marines joined in a land war on the Asian continent in order to deny the bloodthirsty crazies running Iran the ability to launch their nuke? No, sir, I would not, for I would surely arrive too late with too little. Personally, I would I want the thunder and lightning of the US Air Force and the US Navy, flying a package of those expensive fast-burners you so blithely disparage, to penetrate some of the world’s most sophisticated surface-to-air missile batteries, blind the enemy from the skies, and rain destruction on their nuclear capability so severe that it would take them years to crawl out from beneath the rubble.

(I believe your response and mine to the horror this scenario engenders in the minds of many well-meaning civilians, however, would be the same. They’d say we’ve now stirred up a hornet’s nest of reprisals from terrorists. I’d say, and I imagine you would, as well: too late, you idiots. They’re already stirred up. I’d rather fight them with every weapon available before they do what they are telling us they will do, than wait until London, or Tel Aviv, or one day New York, lies a smoldering wasteland.)

Col Peters, you have a vital and precious bully pulpit you’ve earned with common sense. Use it to unite, not divide. These budget battles are honest disagreements between honorable men, but to say the leadership on one service, or two, is filled with those who “haunt the [Pentagon’s] espresso bars” and another one, or two, are led by enlightened souls in whom we need to entrust our future is facile and beneath us all. These are all honorable men, all doing what they believe is right for the future survival of the nation, all charged with the responsibility to advocate for that portion of the battlespace with which they are entrusted. This nation was founded upon the principle of dynamic tension between, and checks and balances on, the legislative, executive and judicial branches. It’s been the most successful experiment in self-government in the history of the world. Why should we do less in the Armed Forces?

Respectfully submitted,

Brig Gen Joseph L Shaefer

USAF, Ret

WHISTLING PAST THE GRAVEYARD -- Financial Affairs

A market that continues to rise in the face of weakening earnings, lower employment, lower productivity and the declining value of its underlying currency is one that is "whistling past the graveyard."

As subscribers will read in the upcoming Investors Edge (if le deluge doesn’t begin before the end of the month!) I see a disconnect that, from what I read online and in the Wall St Journal, Barron’s, et al, leaves me a majority of one in the analyst community.

The disconnect? In January, the US manufacturing sector turned in its worst numbers since Katrina. We are losing our industrial base. Worse, December numbers show no foreign capital inflow whatsoever to the US, which needs about $70 billion from the rest of the world every month to finance our deficits. (Instead there was an $11 billion outflow.) And the take of nearly every analyst on the Street? This is all “good news” because it means The Fed will likely have to cut rates, making home loans cheaper, bailing out all the idiots at Merrill and HSBC and GM who wrote trillions of $$ in “sub-prime” (lousy credit) mortgage loans.

That's just wrong. And wrong-headed. Cheap credit is NOT necessarily a good thing. Cheap credit would simply start the cycle all over again. Sooner or later, ever sine curve regresses to the trendline -- and we are well above the trendline today.

When Sam Zell sold his entire real estate portfolio to Blackrock, it made the real estate sector jump. Why? Because Greater Fools were buying what they thought might be the next real estate stock takeover from a fattened LBO firm or hedge fund. I ain’t buying it. When a guy like Sam Zell sells his entire real estate portfolio to an unfocused bunch of boy wonders with too much money from too-trusting investors, it means the smart money is selling to the dumb MBAs.

Bottom line: we will sell inflated industrials and financials and will continue to buy quality firms with real assets like NBR, BHI, and PDS in the energy business -- cheap. And the golds and industrial metals -- cheap. A weak dollar = higher gold. I’ll also keep owning savvy funds like Third Avenue Value that has as its biggest holdings non-US TOYOTA (which sells as many cars in Asia as in the US), CHEUNG KONG and HENDERSON LAND (both Hong Kong-based conglomerates with their fingers in the China pie.) And I’m keeping my bets on a slide in the NASDAQ with some “inverse-OTC” funds. For those who are non-clients and non-subscribers, please be careful about getting irrationally exuberant. I believe we’ll end the year in the black, but we may have to endure a few red months between now and then…

DECEMBER 7, 1941. SEPTEMBER 11, 2001.

Today is the 65th anniversary of Pearl Harbor. An enemy that had been planning their "surprise" attack since the early 1930s murdered 2300 men who stood on the decks and in the bellies of 80 ships of the line -- virtually our entire Pacific Fleet. The day after, Admiral Yamamoto was alleged to say, "I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve." No record exists that he ever uttered these words (not that the truth ever stops Hollywood.) What he did say was "I can run wild for six months … after that, I have no expectation of success." Which was eerily prescient given that six months TO THE DAY later, the Battle of Midway ended with the sinking of four Japanese carriers (leaving them with only two,) the deaths of over 200 experienced combat pilots (more in a day than they had trained in a year prior to Pearl Harbor) and the end of Japan's ability to project power across the Pacific. After this dastardly deed, the citizens of the United States pulled together as never before. Recruiting stations were swamped with young patriots who wanted the honor of defending their nation. Women rushed to fill jobs vacated by their men and Rosie the RIveters began to build the ships and tanks and airplanes we needed to defeat fascism in Europe and in the Pacific.

On September 11, 2001, an equally determined and deluded enemy murdered nearly 3000 civilian men, women and children. Did Americans rush to recruiting stations? A few did. Did the country pull together to defeat this equally powerful and hateful foe? No. But America did go shopping. Told by our leadership that we mustn't let the evildoers desstroy the American economy, they urged us...to go shopping. Maybe it's my 36 years in the US military. Maybe it's my family history of service to country. But I think going shopping is an inappropriate response to a dastardly, cowardly, vicious attack by a fanatical bunch of Islamic thugs who believe that because we do not believe what they believe we must die. Young Americans in the military have responded with honor, with strength, with compassion, and, where needed, with a vengeance. And some Americans not in the military, who understand this threat for what it is but are too old or too young or too busy raising the next generation of patriotic Americans, have supported our troops in every way one can without being in theater. But unlike WWII, most Americans...went shopping. And still they shop. The war is old news. We just need to stop it and move on to more interesting things like whether the Zune is better than the iPod or cable beats DSL.

This an important day. I'd like to say thank you to the boys and girls of 1941, 1942, 1943, 1944, and 1945. And to the boys and girls of 2001-2006.

And I'd like to say to those too busy shopping to notice that men and women are dying to allow you the privilege of overcharging your credit cards: get a life. 50 years from now no one will care and 75 years from now no one will remember Nick and Jessica or Brad and Angelica or some heiress with clearly no skills, no talent, and no education. But they will care, and remember, whether Americans in 2006 were able to muster the moral courage that Americans did in 1941. Let us hope we do not disappoint them.

VR/ JLS
Brig Gen Joseph L Shaefer
USAF, Ret
http://jlshaefer.blogspot.com/

PLAYING 2ND BASE TONIGHT AT ELYSIAN FIELD: National Affairs

My wife and I are in Kansas City today paying our respects to one of Base Ball's great players and greatest ambassadors. I made an impassioned plea in July (see below) for all to sign the petition to draft John "Buck" O'Neill into the Baseball Hall of Fame while he was still alive to see it. At 94, I figured this was our last chance.
Too late. Mr. O'Neill, known to all as Buck, died a week ago. Today thousands of people he befriended or inspired filed past 2nd base on the Field of Legends at the Negro Leagues Baseball Museum at 18th and Vine. His life was filled with the Joy of the Game. He never asked for award or recognition and, in fact, was delighted for those who were inducted last year in his stead. That was Buck. His enthusiasm and indomitable spirit will be missed.
As for the dodos who didn't vote him in to Cooperstown during his lifetime, I offer the pithy cartoon above, courtesy of Lee Judge, the irrepressible editorial cartoonist for the Kansas City Star. One picture is worth a thousand words...

SPEAK ENGLISH, DAMN IT -- National Affairs

I speak a few languages. Spanish isn't one of them but it's the next one I want to learn. Why? Because I want to spend more time in Patagonia and the Southern Cone nations as well as in Spain and maybe in Peru. Even if I am only a traveler in another country, I want to learn the rudiments of pleasant conversation there. If I were ever to emigrate to another nation, I would want to speak that language fluently so I could assimilate completely. I wouldn't want to remain forever an auslander. Obviously, many of those who enter the United States illegally don't give a damn about assimilation or experiencing a different culture than the one they were raised with. And too many US companies want to pander to that separatism in order to make a few extra bucks. I now hang up the phone and cancel my business with companies that tell me to press 1 for English, 2 for Spanish and 3 for Arabic. (OK, maybe not yet, but just let the politically-correct crowd know how many voters / buyers are Arabic speakers and it'll happen.) When in Norway, I speak Norwegian. When in Germany, I speak German. When in France or Italy, I do my best to improve my French and Italian. And when in America, most of Canada, Ireland, the UK, Australia, New Zealand and South Africa (the other English-speaking nations I have visited so far) I bloody well speak English.

SAFETY FIRST -- International Affairs

If it saves one life or a thousand – and deprives those depraved sons of bitches hell-bent on killing innocent bystanders of a coup – I’m all for checking my electronics and liquids when I fly. At least I won’t have to listen to those inane and insignificant cell-phone users who think the entire world is deaf and we all want to hear about their children’s toilet successes or their business failures (or is it the other way around?)

But isn’t there a smarter way to do this? Rather than surrender my $800 camera, $1200 laptop, and $100 phone to the gentlemen in checked baggage [Want Ad: Gorillas wanted. Must not give a damn about anyone’s possessions. Foul temper gets early bonus] why can’t those devices undergo appropriate scrutiny at the gate, then be taken away from me before I have a chance to retrieve and sequester anything? We could be allowed one bag, and one bag only -- up until the checkpoint --for our delicate valuables we don’t want to be separated from. Once it clears x-ray, airline employees would place them above my seat in the overhead compartment before I ever got on the plane and those overheads would be locked, before passengers board, for the duration of the flight.

We’d all fly easier knowing our most valuable stuff was right over our heads, rather than being tossed about in The Baggage Handlers’ Ultimate Frisbee championship. The plane would board 376% faster since no one would be allowed anything more than a book or magazines they can carry in one hand. The plane cleaners would have left a bottle of water in each seat pocket. At the other end, the overheads would be unlocked and we’d retrieve our valuables. The additional expense the airlines would incur to have employees secure carry-ons would be offset by fewer delays and less paid hours. They now pay gate agents and flight attendants the same thing whether they are standing around frustrated in trying to get passengers to stow bags and take a seat or whether they are whisking passengers through the skies. What am I missing here?

DRAFT BUCK O’NEIL -- *THIS YEAR* -- National Affairs

One of the greatest ambassadors for the game of baseball is 94 years old this year. Yesterday, he became the oldest man to ever play professional baseball. OK, so maybe it was just a publicity stunt for the minor-league Kansas City T-Bones – but it was done with the respect the great Buck O’Neil has earned.

On Tuesday, July 18, Mr. O’Neil played for both the East and the West in the 2006 Northern League All-Star Game. He signed with the Kansas City T-Bones last week, but was dealt to the Fargo-Moorhead RedHawks just prior to the start of Tuesday's game. Buck took a walk from East starter Jonathan Krysa – and was none too pleased with being walked -- before allowing pinch-runner Stubby Clapp to take it from there. At the beginning of the bottom half of the first inning, T-Bones' owner John Ehlert traded again to bring Mr. O'Neil back to the T-Bones and the East squad. He was the lead-off batter to begin the bottom of the first, where he was again walked.

Over his 7 decades in baseball, Buck O’Neil’s enthusiasm and passion for the game has inspired everyone who has come in contact with him or read an interview with him. If not for Buck, we wouldn’t know half the history, or a third of the stories that make that history come alive, from the days of the Negro Leagues.

Buck played for the Denver White Elephants, the Miami Giants, the Dunsieth Acme Colored Giants, the Zulu Cannibal Giants, the Kansas City Monarchs, as well as for teams in Cuba – anywhere, in those segregated days, where a man could play baseball without being arrested, beaten, or worse.

He played with Satchel Paige, Cool Papa Bell, Jackie Robinson, Ernie Banks, and scores of others. He began his career in 1934, when he was 23, playing first base for the Kansas City Monarchs. He wasn’t the greatest first baseman in the league; that distinction went to another Buck, Buck Leonard. And Buck O'Neil wasn’t a big home run hitter, the only thing, it seems, most fans care about these days. In Buck’s day, it was more about teamwork, about strategy, about the team. Winning the game was what counted, not winning an endorsement from Wheaties. Buck O’Neil was a finesse hitter, pounding line drives rather than swinging for the fences. This ability won him the Negro American League batting title in 1946 with a .353 mark. In the Negro League World Series that same year, Buck batted .333 with two big homers.

After attending Edward Waters College in Jacksonville, Florida, where he starred on the baseball team, Buck began his career. In 1935 he was first baseman for the Denver White Elephants, and the team entered the first national semipro tournament in Wichita. It was in Wichita that O'Neil caught his first sight of the very best Negro League like Satchel Paige, Double Duty Radcliffe, Quincy Trouppe, and Hilton Smith. Ultimately, Buck went to the Kansas City Monarchs where he would stay for almost 20 years as a player and manager. During this time, Buck played in 4 East-West games, and also played with Satchel Paige’s All-Stars when he wasn’t playing for the Monarchs.

Viewed only as a player, Buck probably falls short of the great players already inducted, long overdue, into the Hall of Fame (HOF). There’s no question that men like Satchel Paige and Josh Gibson deserve to be in the Hall purely for their playing ability. But during the early years, statistics for the Negro League teams and players were, shall we say, “spotty.” We’ll never know just how good any of these men were. We have one idea from the exhibition games played against all-white Major League (MLB) teams – games which the Negro League teams nearly always won, as men like Double Duty rotated between catcher and pitcher from inning to inning and men like Satchel pitched nine innings, then went across town for a Negro League game and pitched nine more – winning both without a relief in sight.

We do know that, after the color line had been broken, interest in keeping accurate stats increased. In 1952, when O'Neil was 40 years old (which is seen as a major MLB accomplishment nowadays!) he led the league in fielding percentage at .988, and was 12th in batting with a .333 average, 12 doubles, 1 triple, 5 homers and 37 RBIs in 171 at bats. In today’s Major League season of 550 at bats, those numbers equate to 183 hits, 39 doubles, 16 homers and 119 RBIs.

But I don’t advocate Mr. O’Neil as a must-vote for this year’s HOF based on his role as a player, good as he was. Better than that, he has been one of the all-time great players, scouts, managers, coaches and ambassadors for the love the game in the history of baseball. As player/manager, he led the Monarchs to four Negro League titles between 1948 and 1953. For many years he was also a scout for the Kansas City Royals. And he sent more players to the Majors than any other manager, including Elston Howard, Ernie Banks, Lou Brock and Gene Baker.

And while Jackie Robinson was the first black player in the National League, followed by Larry Doby in the American, I would argue it is every bit as big an accomplishment to become the first black coach, as Mr. O’Neil did with my how-long-o-Lord Cubbies.

I don’t believe there is any other candidate, active or retired, who has done more for the game of baseball than Buck O'Neil -- a great first baseman, a great manager, a great scout, and the game's first black coach. Hundreds of black ballplayers and millions of Americans, black, white, or polka-dotted, owe at least some of our enjoyment of the game to the man who would be cheered by white fans as he hit home runs, then turned away from their diner when he went for a sandwich – and who feels no bitterness to this day. He says instead how lucky he was to have been born in America and allowed to play baseball.

If you believe as I do, the best way to show your support is to visit the Kansas City T-Bones website (http://tbonesbaseball.com/.) In the left column on each page you will find a small notice that says, “Sign the petition. Get Buck in the Hall.” Do it today. Mr. O’Neil, like all of us, is not getting any younger…

“DISPROPORTIONATE RESPONSE” – International Affairs

I see today that Russian Foreign Minister Sergei Lavrov condemned Israel's retaliatory strikes against Lebanon and Gaza as a "disproportionate response." A “disproportionate response.”

Well, what the hell were they expecting? A “proportionate response?” You fire a rocket into Haifa, we fire one into Beirut? You kidnap one of our soldiers and we kidnap one of yours?

This isn’t checkers, Foreign Minister, it is life – and death. Comes a time in every nation’s history where that nation, in order to fulfill the most basic reason for government, the protection of it’s citizens lives, must say “Enough.” “Basta.” “Assez.” “Genug.” “Bastantes.” “достаточно.”

When a man walks up to you on the street and shoves you into a wall, do you shove him back? When he then strikes you in the face, do you shake it off and strike him back? Only in the movies. In life, him what strikes first often debilitates his rival before the strik-ed can respond to the strik-er.

So what is the appropriate response when a man shoves you into a wall and threatens you? You can try pleading with him to be reasonable. That’s the European Union solution (…to everything. EU motto: “We aim to appease.”) With bullies, pleading yields one thing and one thing only – getting the crap knocked out of you. You have the satisfaction, if you live through the beating, of knowing that he was such an unreasonable fellow and it’s a good thing he lives down the street instead of next door.

Or you could try Minister Lavrov’s suggestion – you could shove back, then await his next move which may be a fist in the face. You do the same, of course. Then he pulls a gun, usually one of a caliber beginning with “4” and – whoops! – guess your proportionate response depends on his aim and whether you can get a shot of your own off before your body reaches room temperature.

No. The only response to continued provocation by bullies is, when he shoves you into the wall, you grab him by a part of his anatomy that he holds dear and you twist -- forcefully. Or you hold his head next to yours and you bite his ear – off. Or you feign the EU position of submission then bring your hand up under his chin and send his teeth into his nose. When confronted by bullies who only get bolder with each victim who rolls over for them, the only logical choice for a reasonable man is to smite them. Negotiate in good faith and honesty with other reasonable men. Bullies will only be emboldened by and will take every advantage of your kindness.

Israel has done exactly the right thing to defend the lives of its citizens. Strike with the biggest fist, the latest weapons, the best men, and the clearest purpose, with right on your side. Induce fear and dread in those who have continually and underhandedly done you harm. Leave them dazed and bleeding. They will hate you for it – but they will respect you. In this part of the world, they are going to hate you, anyway. Better a racist, rabid mob that hates you but fears your response to their terror than a racist, rabid terrorist mob that believes you are a paper tiger, theirs for the crushing.

No, Foreign Minister, you don’t respond proportionately. To teach a lesson to those who would kill you without remorse, without shame, without conscience, you send every rock on every mountain raining down upon their heads. You remind them, and not subtly, that actions like bullying, killing, maiming, terrorizing have consequences, like the opportunity to see a momentary glimpse of what heaven looks like, the last irony before you spend eternity in hell.

But then, let’s not be disingenuous, at least not with so straight a face. You know all about disproportionate response, Minister. The embattled Israelis are fighting an enemy that vastly outnumbers them and one that plays brilliantly on the world stage their role as the poor, put-upon dispossessed. Has not Russia defended itself against the “Chechen bandits” the same way? Well, almost… The only difference is that you vastly outnumber the Chechens. And you are the ones controlling the media. And you have, and have used, the giant armored fist to crush any resistance from those you call (and I believe you may be right) Islamic terrorists. Now I’m not saying I’d do anything different if I were faced with a bunch of fanatical terrorists. Which, by the way, America is. But, um…regarding your Chechen forays, isn’t that kind of like a “disproportionate response?”

I guess there is no Russian equivalent of “What’s good for the goose is good for the gander…”

HAPPY 230th BIRTHDAY, AMERICA -- National Affairs

Happy 230^th Birthday, America.

We celebrate our birthday today. Yet there are so many other days we might have chosen.

We don’t celebrate the Birth of A Nation on the anniversary of that first disorganized and hastily-mounted insurgency we now call Patriot’s Day, April 19, 1775. But we could. That’s where it all began.

Nor do we honor the day, June 14 of the same year, when we began to field an army of resistance when the “Continental” Congress authorized 10 rifle companies as the core of the “Continental” Army.

We don’t celebrate as our birthday the following day, June 15, when Congress appointed a leader for this army, a former British Lt Col, soon-to-be General, and then President, George Washington. It was John Adams who fought most vigorously for Washington because, to that point, the only army enlistees were New Englanders and New Yorkers. Adams cleverly discerned that appointing a Southerner as Commander in Chief would rally the Southern colonies to the cause.

And we don’t celebrate our birthday on October 19, which, 6 years and 6 months to the day after the shot heard ’round the world, was the day of the capitulation of Lord Cornwallis to Washington. The War of Independence was over! Cornwallis at first tried to surrender to Comte de Rochambeau, Lieutenant General of the Armies of the King of France, to avoid the humiliation of admitting defeat at the hands of these rag-tag colonists, but Rochambeau wisely declined and sent Cornwallis’ emissary to Washington instead. (Still, as a sop to the British, the Articles of Capitulation read they are between Cornwallis and “his Excellency General WASHINGTON, Commander in Chief of the combined Forces of America and France…)

Of course, all we achieved with the end of the Revolutionary War was freedom from British rule. There was still no “nation” birthed, just a bunch of insurgents who fought together to gain freedom from something, not to create something. That would have to wait six more years, until – finally -- The Constitution of the United States began to change the united colonies into a nation on September 17, 1787. It was still a dicey affair – the document was signed by just 39 of the 55 delegates, and was then ratified, colony by colony, until it gained the required 2/3 approval on June 21, 1788, when New Hampshire became the 9th of the 13 colonies to ratify the Constitution of the “United States.” Now we were states, not colonies. Now there was a nation, not a confederation -- an entity that could “establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty” for its citizens. (At least most of its citizens – these ideas were radical enough in themselves without also taking on the Southern states on the issue of slavery. The best compromise the signers could agree to was to stop the importation of slaves into the United States by 1808. It would take America’s bloodiest war, 73 years after the Constitution was ratified, to finally bring this issue to the fore, and 100 years after that for the Civil Rights movement to force Congress to enact full legislation providing equal justice to all Americans. Maybe that’s the nature of an evolving revolution and the intellectual heir to Jefferson’s idea that we need a revolution every generation or so…)

April 19.

June 14, 15, or 21.

September 17.

October 19.

Each could vie for its logical position as America’s Birthday. But we chose instead July 4, 1776, the day when a gaggle of radicals from disparate colonies with little in common agreed, in the middle of a humid, stifling Philadelphia summer, to accept the words that would shake the autocracies, dictatorships, kleptocracies, and monarchies of the world, then and now: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…”

Penning such inspiring words meant nothing without the will and the capability to back it up – and we certainly seemed to have none of the latter. July 4^th could have been just another day of the year and this precious document become hollow and lost forever, one more folly by head-in-the-clouds dreamers. It, and we, could have been stillborn.

And that is precisely why July 4^th should be celebrated as our birthday. It is a celebration of dreams and courage and moxie. It required big dreams and big courage to even say those words to the world’s most powerful nation. It is remarkable for the sheer brassiness of it, a brassiness and naivete and roll-up-our-sleeves-and-get-it-done attitude that characterized Americans then and now. Many in The Old World still shake their heads at America’s brashness and “naivete.” They resent our unwillingness to accept the status quo and to go along to get along. Clearly we don’t understand the way the world works. Sure we do. We’ve just decided to change it.

July 4^th may be the most illogical of all the days mentioned above to celebrate as a birthday. How dare we declare ourselves a nation with such a pitiful and under-fed army, no executive, no judiciary, no rules of commerce, and a congress that couldn’t agree on anything except the source of their discontent?

But we did. And damn if we didn’t succeed.

We didn’t succeed because of our brilliance on the battlefield – we lost almost every substantial engagement. We didn’t succeed because of our radiant diplomacy – most of the time, we alienated our friends or underwhelmed them with our bickering and provincialism. Thank God for Dr. Franklin.

We succeeded by luck, by pluck, and by the absolute commitment that gave no room for retreat, denial, or defeat. This is our birthday because it is the day we pledged ourselves to each other and to posterity. There can be no finer birthday gift from any single group of men to the millions who followed than the one enshrined in the final words of the Declaration ratified 230 years ago today: “…for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.”

Happy Birthday, America.

IS CONGRESS ABOVE THE LAW? – National Affairs

Can anyone explain to me the brouhaha over the alleged and disgraced bribe-taking thief (and Congressman, but I may be repeating myself) William Jefferson’s office being searched by the FBI?

Were his Constitutional rights violated? Hmm… The 4^th Amendment says, ““The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

The FBI made the case that this would be a reasonable search. A judge agreed there was “probable cause, supported by Oath or affirmation,” and issued a specific warrant limiting the search by “particularly describing the place to be searched, and the persons or things to be seized.”

Now the House of Representatives, where Mr. Jefferson works, wants to cut off funding for the Department of Justice. Excuse me, but since when did members of Congress become above the law? Are they trying to compete with the Executive branch?

No man, no matter how high his elected position, no matter how extensive his net worth, no matter how famous he is or what his good deeds may once have been, is above the law. Even OJ got a fair trial. We may disagree about the sanity of the verdict but at least he stood in thrall to twelve jurors who weighed the evidence. I believe William Jefferson deserves that same right. He is innocent until proven guilty. Of course, a jury can’t weigh the evidence if there is no evidence. That seems to be what the House of Representatives wants. They claim it’s about the separation of powers between the executive and legislative branches of government. Bull. It’s about them thinking they are above you and me and the laws the rest of us have to obey.

Even former Congressman and House Speaker Newt Gingrich got his knickers in a knot, claiming this is "the most blatant violation of the Constitutional Separation of Powers in my lifetime." He then called on President Bush to discipline or fire "whoever exhibited this extraordinary violation."

Extraordinary violation? Wrong, Newt. The Constitutional Separation of Powers clause refers to the legislative process and is designed to keep the Executive from using his law enforcement arm to cow the Legislative branch. It was never designed to impede a criminal investigation of a single member, and it sure as hell wasn’t designed to protect Quasimodo as long as he hides out (or hides his records) in the Notre Dame.

Adding injury to insult, certain Republican members of Congress have asked the Executive to “mediate” in this matter. Our Chief Executive is a President, not a King. A King in an absolute monarchy, where all power is vested in his August Personage, might mediate. But America is a nation of laws, not men. We already have provisions for such matters. It is offensive to the electorate and the Founding Fathers to have a sitting President “mediate.” I want my President to lead, not mutter, not mendacate, not mediate.

You have to accept a legally-obtained search warrant at your office. I have to accept a legally-obtained search warrant at my office. Even justly-disgraced President Nixon, failing in his bid to extend Executive Privilege beyond it’s legal definition, had to turn over The Tapes. Is there any reason why members of Congress should be above the same laws?

TENNIS: WORK OF THE DEVIL – International Affairs

I read today that an Iraqi tennis coach and two of his players were murdered in cold blood in Baghdad – because they were wearing tennis shorts to a match. Ordered out of their car, the Sunni coach and Shiite players were shot and left to die on the streets of Baghdad.

These are some sick puppies who, armed, pull unarmed men from their car, put a bullet in their head, and then watch them bleed out. What’s next? Murdering women because they allow a child to emerge from the womb without being fully clothed? I don’t know about you, but when I have a sick puppy that’s too far gone to be saved, I do the humane thing: I put him down and relieve his misery.

Clearly these sons of bitches are miserable. The only humane thing to do is put them down. It will save Islam from the embarrassment of being associated with them and save the rest of us from having to hear about their depraved psychosis. Be humane – kill a psychotic terrorist today. They’ll be happier, you’ll be happier, we’ll all be happier.

EXPLORATORY DATA-MINING: GOLD OR LEAD?-- National Affairs

Let’s cut to the chase. For every fire-breathing civil libertarian who views unwarranted wiretapping and data-mining the opening salvo in the gutting of the 4^th Amendment, there is a fire-breathing follow-my-leader who retorts, “If you aren’t doing anything wrong, what do you have to worry about?” So much for engaging in intelligent discussion on the ethical and civil liberty issues.

Legality? For every 100 lawyers who say this is a clear violation of…“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures,” there are other lawyers who say, “Pshaw. We aren’t directly targeting American citizens, and they only get caught up if they’re doing something wrong, even if it isn’t what we originally thought they were doing wrong.” So how many lawyers can tap-dance on the head of a pin?

Having spent 36 years in both special ops and intel, I have strong views on this subject. But I won’t engage in the he-said, she-said of the above two issues. Instead let me deal with a dimension of the issue in which I have some experience. Specifically: can it work? Is it practical to mine data on a scale this large and to then trust that the stewards of the information will have the wisdom of Solomon? Stated another way,

Will the false positives so overwhelm our law enforcement and homeland security agencies that they overlook valuable leads because of massive backlogs – and so allow terrorists to slip through the net while pursuing all these false positives? What do I mean by false positives? Here’s an example:

In my official capacity, I used to deal extensively with foreign attaches. Some of them are now home in Israel, the Arab Mideast, and the rest of the world. Let’s say I call my friend, the former defense attaché from Kuwait. And let’s say his no-good nephew is a Hamas terrorist in Gaza who then calls him to ask for money, try to recruit him, or berate him for being a tool of the US. So far, no problem. I might get a visit from the local FBI office, they determine I’m a retired intelligence officer with a lifetime of keeping my nation’s secrets, they consider it a dead end, and they move on to real leads against real terrorists bent upon harming Americans.

Ah, but here’s the rub. I am also a Registered Investment Advisor. Suppose one of my clients called me earlier that day to discuss taking money from his portfolio for bail because ten minutes prior to that he got a call from his daughter in college telling him she’s been arrested for demanding fair treatment of Palestinians by Israel. (College kids are like that: “If you are not a socialist when you are young, you have no heart. If you are a socialist when you are old, you have no head.”) Voila!! The data mining engineers see a “pattern” – the Palestinian-loving daughter calls Dad, he calls me, I call my friend in Kuwait, and he talks to his Hamas groupie nephew. “You see,” they exult! “A social network that has a high probability of being something worse! Let’s devote a few thousand dollars and hundreds of field agent hours to follow this lead.”

Or how about you get a call from your idiot brother-in-law who berates you because you borrowed his cell phone and now “Some Ay-rab just called me talking about the plans being ready!” He doesn’t know that the Ay-rab is not an Arab but a Sikh from India and he is the architect for the office you are building and, oh, by the way, your Iraqi-American dry-cleaner calls while you’re on the phone and you take that call. “You see,” the data-miners exult! “A social network that has a high probability of being something worse! Let’s devote a few thousand dollars and hundreds of field agent hours to follow this lead.”

…Only these aren’t leads worth following. They are false positives that ultimately gum up the system and bring real intelligence work and real law enforcement to a frustrating standstill. These are simply the fabric of daily life. No harm, you say? The hell you say. We just wasted finite intelligence analysis and law enforcement time on the false positives which will forever outnumber the true positives. Meanwhile, there are real bad guys out there who claim to be students exiting their house with binoculars every night and taking flight school lessons by day. They’re in the queue to be followed up on -- but the case load is so overwhelming that we just can’t get to ‘em for a few more months.

False positives abound in our daily lives. How about sequestering a 4-year-old boy at the boarding gate because he has the same name as an internationally-wanted terrorist? Who applies the common sense test – he’s 4 years old, for heaven’s sake -- and who simply says, “Hey, I’m not going to be the GS-8 who stays a GS-8 because I didn’t follow orders. I’m holding the kid.” Or detaining a US Congressman because he is on “The List.” Or patting down an 80-year-old women on a respirator while our Red Teams (good guys who play bad guys) send weapons through the x-ray machines.

I have many well-meaning and patriotic friends who say, “What’s the big deal? If you aren’t doing anything wrong, you have nothing to worry about.” Yes, you do. You have everything to worry about, whether you are an innocent bystander who shares a last name with a foreign agent, or, worse, are a victim of identity theft (as hundreds of thousands are every year.) The fact that you aren’t doing anything wrong doesn’t help you, the victim of identity theft, when the government eavesdrops on your private conversations as a result of a false positive and overhears you say you’d like to tar and feather the current occupant of the White House. You know you were just letting off steam but Federal agents are not always renown for their sense of the ironic.

That brings us to the wisdom of Solomon. Can we trust the stewards of a resource – a weapon, really – this blunt and with a footprint this large, to always act with judgment and restraint? And, if not, how might it be abused? In a nation of laws, not men, we are protected from such abuse. In a nation where, “We have to suspend, temporarily, some of your Constitutional liberties – in order to save you from harm,” there is no such protection. And how about implementation? We know it is A Good Thing to have air marshals on airlines. But when it came time to implement the program, why did they all have to wear suits, show ID at the gate, be admitted down the ramp in full view of anyone watching, and look like J. Edgar Hoover’s G-Men? We may as well have painted bull’s-eyes on their backs. Collecting data-mining results may be innocuous enough – but once collected, it will be used. Do you believe, given the Federal government’s track record thus far, that it will be used wisely and well?

If you do, you better not read the legal counsel for the Veteran’s Administration’s recent release after an “incident” at the VA: “In May 2006, the Department of Veterans Affairs (VA) discovered that personal information for over 26 million veterans and their spouses was stolen during a robbery at the home of a VA data analyst. The analyst took the information home in violation of VA policy and is currently on administrative leave pending the result of the investigation…. Authorities believe it is unlikely the perpetrators targeted the personal data or are aware they have this sensitive information.” What’s that? The guy violated VA rules by bringing a laptop to the VA -- where no one stopped him -- downloaded 26 million records including names and SS #s, claims that laptop and nothing else from his home was stolen, and you think he doesn’t know what he has???? And to punish him – you placed him on "administrative leave"??????? Oh, yeah, that'll terrify future perps.

It isn't just the VA -- or the TSA -- or Homeland Security. Every bureaucracy qualifies as The Gang That Couldn’t Shoot Straight and the bigger the bureaucracy the greater the chance of disastrous consequences. What’s the nation’s biggest bureaucracy? And you want to trust the government with a record of your phone calls?

What is to prevent one man or a few men, charged with deciding what is and isn’t “national security” from, say, data-mining all calls made by reporters to sources within government? Is this a legitimate way to ensure national security? Such an assault on a free press may stop a leak – but a free press guarantees a free nation. Rail all you like about “the media” (and I do regularly.) Thank God they were on the job exposing corruption at Enron, at Tyco, and at The Watergate.

A case could be made by some that it is “not in the national interest” for the press to be able to report anything gained from a source within the government. Since their calls are traced, they and their sources could be prosecuted or, more insidiously, merely cowed into silence. Who decides, in the absence of a warrant, whose calls are mined and whose are eavesdropped on? We have seen how easily that slippery slope proceeds in states like the Soviet Union, Nazi Germany, and Saddam Hussein’s Iraq. Most men and women enter law enforcement and the intelligence business because they want to blunt, capture or kill bad guys. But some, and more politicians, do so because they want to be the “parent” that “protects” us. We don’t need more parents – we need greater transparency.

There are only so many law enforcement assets. So many intelligence assets. Let’s use them where we get our best bang for the buck. This indiscriminate data mining within America and tapping phones without warrants seems to me like fishing with dynamite instead of with a rod and reel -- you’ll get the occasional whole fish, but mostly you’ll just muck up the pond for everyone else.

A big part of the dynamite vs. rod-and-reel approach comes because we are calling this The Global War on Terrorism. Sounds pretty ominous, that way, so extreme measures are more easily rationalized. But is this a war? A war has a beginning, a strategic goal, and an ending. Even the Hundred Years War ended. Terrorism, on the other hand, has always been with us, in one form or another, and it always will be. That’s why the constant drum roll of fear is not only misplaced, it may be dishonest.

In nations with a functioning electoral process, men and women who feel disenfranchised might run for office. In a nation without such a system, a coup is a possibility, or guerrilla warfare. But when a man or woman has no legitimate outlet for their grievances, and lacks the strength to mount armed guerrilla opposition, what’s left? Terrorism. There will always be those who are, or believe they are, disenfranchised. Hence terrorism has no end. Before the current crop of Islamic fanatics, there were communist fanatics. Have we so quickly forgotten the Red Brigades or the Japanese Red Army or the Baader-Meinhofs? Did not the Irish Republican Army use terrorism, or the ETA in Basque country? And Islamic nut-cases are not the first religious fanatics. How about Aum Supreme Truth in Japan, Jim Jones in Guyana, or Kach and Kahane Chai in Israel in the US? For that matter, how about the Sword and the Covenant in the US? Or the Aryan Nation? Then there are the terrorists-for-hire in nations like Columbia, like the FARC and the ELN, or the we’ll-never-learn Marxists like Sendero Luminoso in Peru. By calling this a war on terrorism, instead of a defense against Islamic fanatics – and I believe the best defense is a great offense!! -- we run the risk that we’ll defend all manner of violations as “during wartime” as long as one terrorist exists somewhere in one corner of the earth.

No one wants to see dead terrorists more than I do. I say let’s blow their heads off before they can do their dirty little deeds. I try to apply a little common sense in the process, however, imposing two conditions to my hunt.

One: Let’s not give up everything in which we believe in order to gain an illusory, tenuous, and possibly non-existent security. Security is over-rated; freedom is not. “Give me liberty or give me death!” is not a rant. It is a clearly-thought-through choice, reminding us some things are more precious than merely depleting the world’s oxygen supply. As Benjamin Franklin said more than two centuries ago, “They who would give up an essential liberty for temporary security, deserve neither liberty or security.”

Two: Let’s make certain our actions result in prevention and apprehension -- not spinning our wheels, wasting precious time running down will-o’-the-wisps, abusing our power or ensnaring so many innocents that the law enforcement agencies stop pursuing the leads. The bad guys are our target, not innocent bystanders caught in a net cast too far and too wide. If even one of us is diminished by overzealousness, it opens a scar on the body of what our Founding Fathers strove to build. History affords too many lessons of innocents caught up in such a net, while the rest of us thought it was their problem, not ours.

Martin Niemoeller spoke with some knowledge on this issue. He was a Protestant pastor who resisted Hitler’s rise to power – too late. He spent the war in a concentration camp. He was lucky – as a Christian Aryan he was allowed to live. His words echo as a warning. While you may believe, and I hope you are correct, that the following could never happen in the United States, can you say the same about some of our less-enlightened allies? I think of Pastor Niemoeller’s words whenever I hear someone say, “What’s the big deal? If you aren’t doing anything wrong, you have nothing to worry about.” He wrote, after his release from the concentration camp,

“First they came for the communists, and I did not speak out-- because I was not a communist;
Then they came for the socialists, and I did not speak out-- because I was not a socialist;
Then they came for the trade unionists, and I did not speak out-- because I was not a trade unionist;
Then they came for the Jews, and I did not speak out-- because I was not a Jew;
Then they came for me-- and there was no one left to speak out for me.”

THE KEY TO MARKET SUCCESS IS DISCIPLINE – Financial Affairs

Our investing discipline at Investor's Edge^® is a value-growth discipline. We have 3 simple rules we invest by:

* Our 1st Rule: First Do No Harm.

* Our Second Rule: Don't Lose Capital.

* Our Third Rule: What Part of Rules #1 and #2 Were Unclear?

Value-growth investing is a disciplined approach which has a center and borders and definition. It is considerably less stressful, more informed, better controlled and more common-sensical than any other investing approach ever devised. But, for some people, it isn't easy. It requires that you bring the same approach to investing that you bring to the other money-spending facets of your life:

I'm going to presume that if you see two gas stations on the same corner of a busy intersection and both feature equally high-quality gasoline and both are self-serve and both are alike in every other way except that one sells gas for $2.55 a gallon and the other sells it for $2.90 a gallon, you have the smarts to buy at the one which sells gas for $2.55 a gallon, especially if the line there is shorter (which is always the case with value stocks versus high-price-earnings-ratio, overly-popular, momentum-investing stocks!).

I presume further that if you go out to lunch and you have a choice between two restaurants, located right next door to each other on the same street and both have the exact same ambiance and feature equally fine-quality food, but one is having a special on exactly the dish you want and sells it for half what the place next door charges, that you'll choose the less expensive restaurant which offers the (far) better value.

Yet you will find that most of your neighbors, friends and co-workers are much more comfortable going along with the prevailing rumors, earnings projections and management fairy tales foisted upon an unwary investing public when they buy stocks! It's hard to think about selling a concept stock you overpaid for, even if it does sell at 75 times earnings, 5 times its book value and 20 times its annual sales, when there is a laudatory article on the cover of The Daily Planet about what a Superman the president of that company is -- which always occurs when a company has run up, the news is out, and the common financial press notices the story.

And it's really hard to buy that coal producer when it sells for just 4 times earnings, at less than book value and less than one times annual sales when every article you read in the financial press is decrying the current recession, high unemployment, the management shakeup at the company and the fact that no one is buying coal this year.

What's Your Investing Time Frame?

Remember, you don't buy a stock for this year. You buy it this year with the idea of selling at a profit next year or at some other point in the even more distant future.

Never forget this essential truth in the stock market -- there are reporters and there are seers. The reporters don't always get the story right and the seers don't always see the future correctly. But, by the very nature of how they view their job, you ought to know what to expect when you read an article by either of them. Seers -- like newsletter editors, mutual fund managers and research analysts (like we said -- they don't have to see correctly in order to be considered a seer!) are looking at trends which they believe, rightly or wrongly, will prevail in the future.

Reporters report. They don't try to predict what will be, they merely report what is. Remember that the next time you read "terrible" news about car sales (that is last month's, last quarter's or last year's sales) or "great" news about recent earnings by some company (that's last quarter's or last year's earnings).

Worse yet, many of the people you've been turning to for market advice have a vested interest in seeing you do what will make them the most amount of money, not what will make you the most. They'll be wrong - and your portfolio will reflect that wrongheadedness by underperformance.

The most successful investment approaches are conservative, prudent strategies that take advantage of temporary inefficiencies in the marketplace. These temporary inefficiencies can last anywhere from a week or so (like when a great company declares disappointing quarterly earnings, then is the recipient the following month of a huge contract which will dynamically change their earnings profile) to a year or longer (as when an entire industry - gold in the early 1970s, health care in the early 1990s - is inaccurately perceived as being an anachronism).

Because you will be buying securities when they are unpopular with the bulk of the sheep who meekly follow brokerage firm research recommendations, your broker may snidely "inform" you that the industry or the stock or the convertible bond that you have instructed them to buy is a "buggy whip" company and that, instead, all right-thinking and trend-following lambs are now buying International Internet MegaSuperHighway Telecomcable and Couch Potato Programming, Inc. because it's "the next Cisco". Humbug. If your stockbroker's so smart, how come he's still flogging stocks when, by following a disciplined approach to investing, he could have retired twenty years early to manage his own portfolio?

Market "Anomalies"

Too many value investors have decided that they’ll leave the numbers to the growth camp or the relative momentum players. They use “a good feel for the company’s business”, “fine management” or “a monopoly position” as their criteria for stock selection. In this they think they are following in the footsteps of Warren Buffett and Peter Lynch. Buffett, Schmuffett.

These folk are pale wannabes. Warren Buffett uses these concepts not because he gets a good touchie-feelie but because he tears into a firm’s balance sheet, income statement and various operating statements like a pit bull at full charge.

There are certain anomalies in the stock market. And only by delving into some remarkably simple numbers will the anomalous stocks which offer excellent value come to the fore. Those anomalies are:

* Stocks with a low price-earnings ratio (PE) tend to perform better over time than those with a high PE.

* Stocks with a low price-book ratio (PB) tend to perform better over time than those with a high PB.

* Stocks with a low price-sales ratio (PS) tend to perform better over time than those with a high PS.

* Stocks with low institutional ownership tend to perform better over time than those with high institutional ownership.

Value-growth investing is all about selecting stocks that have assets which are undervalued by the market. They often pay high dividends and are offered at a relatively cheap price. For the most part, they are slower-but-steadily-growing companies, or companies which have fallen out of favor (usually for the dumbest reasons), or those which are in cyclical industries when the cycle has turned against them. And these are precisely the kind of companies I want to uncover for you at Investor's Edge. Companies you can own and still sleep at night; companies you can own and still eat better next year than you did this year.

You Pay For "Concepts"

Typically, investors pay too much for fashionable, top-of-the-news trendoid concept stocks and forget about the companies that are no longer on the front page -- but are solidly ensconced in the Business section.

It's more fun to talk about the latest hi-tech wonder that went up 20 points on the day of its IPO than it is to talk about some company which increases 15%, from 20 to 23, then next year to 27, then next to 31, etc. 15% is BORING -- and incredibly profitable. Up 100%, from 20 to 40, then down 50%, from 40 to 20, is EXCITING -- and unprofitable. As a result, emotional excitement overrides common sense almost every time for almost every investor.

Plus, the concept stocks, with their high Price-to-Book Value, their high PE (Price-to-Earnings Ratio), their high Price-to-Sales Ratio and the high level of excitement they generate when they capture our fancy perform worse over time than their more favorably-valued cousins. When I advocate disciplined investing in fairly-valued companies, I'm not disputing that some companies don’t grow faster than others. I'm just saying that the market extracts too high a price from individual investors to participate in that fast growth. The ticket for a slow-moving train costs 1/3 the price of the ticket for the fast-moving train. If there's an accident on the tracks, better you're going 40 miles per hour than 120. And, after accounting for accidents, side trips, and delays, the value-growth train often arrives in the station first, anyway!

Finally, too much of the performance of concept stocks comes from factors beyond the company's control. The market itself is a huge factor -- a rising market lifts concept stocks more than value-growth stocks. And the industry they are in means more than their own performance. At the height of the science bubble or the PC bubble or the biotech bubble or the Internet bubble, it didn't matter whether a company had earnings, sales or prospects for achieving earnings or sales at the expense of their competitors. If you had rationally pointed out to your friends that a particular company was severely undercapitalized, had second-rate R&D, no sales and a management team assembled from Juvenile Hall, they probably would have looked at you, rolled their eyes, and said, "You just don't get it. They're in the Internet business." And we wonder why people lose money in the market?

Growth AND Value Are the Ticket

You'll notice that I consistently use the terms "value" and "growth" in the same sentence in Investor's Edge. Most analysts make a distinction between the two. I don't. My distinction is between "growth and value" selections and "concept stocks". At any time in its corporate existence, a growing company can be considered as an investment mostly for its growth characteristics, at other times (like when its stock price is temporarily depressed for some reason) for its valuation characteristics.

Don't buy stocks just because they are cheap. Buy companies (not "stocks") because you think they will grow their sales, their earnings, and possibly their dividends, substantially over time. You and I just don't want to buy them when they are wildly popular -- when the stock price has gotten way ahead of itself. We want to buy them when the price of their stock has been temporarily knocked down (as the industries I've discussed in the last 3 months have been). Then you and I have the best of both worlds and the only kind of stock we like to own: a growing company with great future prospects so unrecognized by the rest of Wall Street that its price languishes relative to current sales, earnings, yield and book value. < >

This article originally published in Investor’s Edge. For more information, visit www.investorsedge.us.

ILLEGAL IMMIGRATION – CLOSING THE CANDY STORE -- National Affairs

I read today some Federal agency spokesperson’s comment that we couldn’t possibly round up all the illegals in this country in the next ten years. Implication -- Why try? Boy – I guess you become a Federal agency spokesperson when you don’t have the chutzpah to be a car salesman, have failed the bar exam too many times to be a lawyer, but your ethics are still too high to be a member of Congress.

Son, we don’t have to round them up. Here’s Shaefer’s 6-point plan for stopping illegal immigration – while tearing down any and all walls so people don’t hurt themselves getting back out:

1. Stop providing free medical care and any other social service to those who enter or stay in this country illegally. Only exception – if they are the victim of a violent crime reported to the police.

2. Educate no child who is, or whose parents are, in the country illegally.

3. Change the law that makes an automatic citizen of anyone born in the US, even if born to Hamas parents here illegally.

4. Make it a criminal offense to rent lodging, whether for a night or a month, to anyone in this country illegally. The same with selling a home.

5. Put employers who knowingly hire illegals in jail. First offense 48 hours, second offense, 30 days, 3^rd offense 1 year.

6. Because all of the above makes it more desirable to obtain false US citizen ID: Get an illegal ID, you go to jail -- where you can work (for free) at hard labor for three years. Provide an illegal ID to someone, you go to jail where you can work (for free) at hard labor for three years – for each ID.

The elegance of this plan is that it requires no fence or wall being built – our Border Patrol can now assume however, since there is no economic incentive to come to America, if you’re crossing our border illegally, you’re up to no good. Deadly force would be authorized.

It also avoids the problem of over-taxing law enforcement agencies from wasting time trying to round up illegals – just get out of their way as they stampede out of the country.

I don’t blame anyone for overstaying their visa or entering the country by dead of night: Of course they want to come here. Let’s see, in most parts of the world I can live on a few dollars a day with no medical care and no education for my kids and no job and o future or, hey, here’s an idea! I can go where the idiot leadership wants to look the other way so I can get a job, they want to educate my kids, they want to give me free medical care (which raises the costs hugely for those fewer and fewer legal citizens still dumb enough to pay for it), and any kids I have there will grow up as US citizens who can then legally protest my expulsion since I am a family member.

We created the incentives that attract illegals; we can take them away. If someone has no shelter, no job, no medical care, and no educational opportunity, why would they stay in America? The candy store is closed. They can return to whatever country they were smuggled here from and change it.

PS -- Besides, with any "amnesty" program [read -- illegals illegally being stamped legal] the moment they become "legalized" by fiat rather than by hard work, illegals no longer have a reason to work for less than union scale. The culinary, hospitality, and construction unions will gleefully sign them up to replace sagging membership , they'll only work for $18 or $22 an hour, and the whole circus will start again with NEW illegals realizing the sneaky way to the gravy train beats the legal way. Economically? We'll be worse off because now there will now be too many $18-an-hour workers, and those who are laid off get -- what else? Full unemplyment compensation and welfare. That does not advocate for continued employment of illegals. It advocates, rather, for higher legal immigration quotas, including for a replacement number of entry-level jobs from all nations, especially those with few jobs and few prospects -- and these entry-level jobs receive entry-level pay. There are plenty who would come to America for the same reason countless millions have come here. The difference is, they would call it home...

the person who says that something can't be done should never interrupt the person who is doing it... Anonymous

WHY OIL COMPANIES DON’T WANT PERMANENTLY HIGH PRICES – National Affairs

Sounds like a non sequitur, doesn’t it? What business doesn’t like higher prices? Don’t get me wrong -- higher prices usually mean higher margins and that means bonuses and raises for executives and employees and it means happy shareholders. But oil companies don't want permanently high prices or prices that are too high. There are three reasons for this:

(1) Those who produce oil, those who refine it, and those who sell it realize that, above x price (with x fluctuating depending upon incomes and inflation expectations,) oil will be uncompetitive with alternative sources of energy. Once we’re hooked on oil, it is stupid for oil companies to price their product at a point where other rivals and newcomers undercut them. Too high a price and we all switch to solar to heat our homes, ethanol to power our cars, and nuclear to power our electric grid. Once we’ve switched we won’t go back. Why make Arab dictators and Venezuelan socialists rich when we can produce something that does what oil does at as good or better a price and produce it right here in the USA?

(2) Oil companies don’t own their raw material. Repeat after me: Oil companies don’t own their raw material. Venezuela owns Venezuelan oil. Saudis own Saudi oil. Nigerians own Nigerian oil. Et cetera. Oil companies are no different than the proprietor of a country store. If Frito-Lay ups the price of a bag of potato chips by $1, does the country store proprietor benefit? Yes -- to the extent that he earns the same profit margin. If he bought a bag of chips for $2.70 before and sold it for $2.97, he operated under a 10% margin and made 27 cents a bag. But if he now pays $3.70 for the bag, but keeps the same 10% margin, the bag will cost you and me $4.07. Did the storekeeper make a windfall profit? No -- he made a little more but he’s operating on the same margins. It’s Frito-Lay that made the big bucks with the price rise. Think of OPEC as Frito-Lay, only bigger.

(3) The higher the price of oil, the greater the share of proven reserves the oil companies booked at way lower prices. They lose money because, once those old wells negotiated with an assumption of $20 a barrel, or $30 or $40 or $50, hit their payout targets, the nation in which they are drilling gets to raise their share of the revenue.

For all these reasons, big oil companies, oil refiners and oil and gas retailers don’t want to kill their primary, and in some cases their only, source of income. They’d like to see oil settle somewhere around $50-$55 a barrel, the equivalent in today’s dollars of about $20-$22 in 1980s dollars. Oil prices that are too high = world recession = a collapse of oil prices. Thus has it always been, thus shall it always be. Whenever we get to this side of the gas price bell curve, we hear the choruses of the ignorant saying, “This time it’s different,” or “The world is ending.” They’re wrong.

At least higher prices at the pump don't give the Feds and states more money to fund their favorite pork projects. Taxes on gas purchases are based upon the volume of sales, not a percent of the price.In 2002, the last year I could find DOE data for, at an average retail price of $1.35 a gallon, the country selling the crude got about 58 cents, the Feds and states got 42 cents, and those who paid for the drilling equipment, labor to find the stuff, suffer the dry holes, ship it across oceans and land masses, refine it, distribute it via pipelines and such, and sell it at retail had to split the remaining 35 cents among them. It’s true that today the countries within whose borders the oil is found get more money. Given the politics of those countries that ain’t a good thing. And because the Fed and state take is “fixed,” (though many states are raising the fixed amounts,) the various upstream, downstream, pipeline and transport companies share is larger, which is OK by me. It’s a boom and bust business. Always has been, always will be. At $10 oil, companies were going out of business left and right. Now they’re making up for it. When supply is greater and demand is lower, they’ll be back in a bust mode again.

At $70 a barrel, who wouldn’t want to produce all-out? As they do, the price will come down. It’s called The Law of Supply and Demand and all the ink from all the Chicken Littles in the blogosphere won’t change that law one bit. I must get a half-dozen e-mails a day telling me to boycott EXXON because they are gouging us poor widdle Americans whose birthright it is to buy 25-cent-a-gallon gas for the rest of our lives. (We don’t mind that our homes have doubled in value or that bread, eggs, and milk cost 10 times as much as they did in 1970 but, by God, gasoline should always be a quarter a gallon!) Boycotting XOM is the equivalent of buying your potato chips -- for the same price, mind you -- from a different storekeeper. It doesn’t affect the price charged by Frito-Lay one iota.

If you want to do something to deal with higher gasoline prices, do this:

(1) Buy shares of oil companies and vote out the SOBs who pay $400 million pension packages to a single executive. Stop the madness. Cap the pay of these dweebs who are stealing from the shareholders. You own the damn company -- band together and fire ‘em all.

(2) Lobby your representatives to raise fuel economy standards and take other intelligent conservation actions. In other words, use less. Remember Supply and Demand.

(3) The first two are for real activists. Just want to complain, but you’d like to do it while making money? Buy shares of energy companies. You’ll still pay a couple thousand extra bucks in gasoline costs every year -- but you’ll pay it out of the tens of thousands you’ll have made owning well-selected companies.

A SOLDIER’S RIGHT, A SOLDIER’S OBLIGATION: IN UNIFORM AND BEYOND -- Military Affairs

I don’t agree with some of my colleagues among the retired officer corps who call for Secretary of Defense Rumsfeld to resign. I think he’s damaged goods, 100% through self-inflicted wounds, but I fear his departure might leave our enemies recharged if they mistakenly believe his sacking signals a weakening of our resolve.

However -- I will defend to the death these honorable men’s right, as American citizens, to believe and to speak out as they choose. This is America. This is what we stand for.

The lack of understanding about what guides our military leadership before, during, and after wearing the uniform of this great country is appalling. I have read numerous tirades accusing these men of being cowards: “Why didn’t they speak up when they were still in uniform?” And I have read others rant that they are traitors: “How dare they undermine the war effort to suggest that our civilian leadership may have had a political agenda that blinded them to the military’s concerns about the war?”

The know-nothings who sling this mud are typically from the “chicken hawk” wing of the hawk family. That is to say, they never even served in the armed forces, never went in harm’s way. Maybe they had “other priorities.” They’ve never patched up a wounded buddy while under fire or wrote the letter to the family of one who won’t be coming home. They wrap themselves in the flag and, in so doing, denigrate its majesty. Every one of the retired General Officers now speaking out has demonstrated, in both hushed and deafening moments, that they are heroes, not cowards; patriots, not traitors. I’ll be glad to take any man who calls my brothers-in-arms a coward or a traitor into the dark alley of your choice – and I guarantee only one of us will walk out. The mud-slingers can only hope to be one-tenth the man as those they so viciously and ignorantly disparage.

Before you call a man a coward, when the most dangerous thing you’ve ever done is drive without your seat belt, look at their experience and compare it to your own. To mention just one, General Tony Zinni served two tours in Vietnam, earned a Purple Heart and Bronze Star for Valor, went on to command every level of military operations culminating in his assignment as Commander in Chief of Central Command – CENTCOM, encompassing a geographic area that included Iraq and Afghanistan – and after retiring served in the Bush Administration as Secretary of State Colin Powell's special envoy to the Middle East. He might know a thing or two about that AO (Area of Operations.)

Worse – These braying ninnies haven’t a clue what they’re talking about when they ramble on about how these retired Generals, no longer serving in uniform but still serving as Americans, are undermining the civilian control of the military. Or that they had their chance to speak up but didn’t. Both statements are red herrings.

In fact, when an enlisted member enlists or re-enlists – God bless them –they take the following oath:

"I, _____, do solemnly swear [or affirm, if their religion or inclination prevents them from swearing-in] that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; and that I will obey the orders of the President of the United States and the orders of the officers appointed over me, according to regulations and the Uniform Code of Military Justice. So help me God.

When an officer accepts his commission or a promotion – God bless them again – he or she takes a similar oath, different only in that ends with, "...that I take this obligation freely, without any mental reservations or purpose of evasion; and that I will well and faithfully discharge the duties of the office upon which I am about to enter; So help me God."

These are solemn words, even sacred. I had the honor recently to don my uniform on one of the rare occasions for which I am allowed to wear it in retirement. I presided over the promotion to Colonel of a courageous and honest man it was my pleasure to serve with in the Gulf War. On a recent short tour to Iraq, he saw something that was just plain wrong. Rather than blindly accept it, he pursued the matter up the chain of command, his future promotion opportunities be damned. I am always humbled when I administer the Oath of Office; in this case, doubly so. A man serves his country first, even if he risks his career. Period. The men and women I served with for 36 years embody that spirit. That includes the retired Generals being smeared on the current version of the Nixon Enemies List..

Now -- I don’t get to choose which provisions of the Constitution appeal to me. I have the responsibility, and the honor, when “I take this obligation freely” to support and defend every line in that world-changing document. Among the provisions of the United States Constitution that I have solemnly sworn to support and defend are those enshrined early on:

In Article I (Section 8), the power is granted to the (100% civilian) legislative branch to "provide for the common Defence," listing specific powers such as "To declare War," "To raise and support Armies," and "To provide and maintain a Navy."

It would do us well to remember that the delegates to the Constitutional Convention in Philadelphia in 1787 unanimously elected a military man, former General and Commander in Chief of all Continental forces George Washington, as president of the Constitutional Convention. General Washington, and nearly every one of the millions of us who have served since, believed that civilian control of those serving in uniform, Active, Guard, or Reserve, set this republic apart from all others.

In addition, in Article II (Section 2,) the Constitution assigns the dual roles of Chief Executive and Commander-in-Chief to the President. This further ensures that the elected civilian President is also the head of the United States military and, as chief executive of the nation, he may delegate defense matters to whatever Secretary of Defense he decides, for well or ill, to appoint.

So when those who’ve never stood up and taken one of these oaths grouse, “Why didn’t they speak out then?” -- who says they didn't? You only know they didn’t speak out in public. Well, that’s the way it should be. The Constitution to which we have sworn allegiance instructs us to work under civilian leadership.

For that reason, these men never spoke out while in uniform – which might have created confusion among those tasked to put boots on the ground or presented a picture of disarray and disagreement to our enemies. But did they speak up? I wasn’t there -- but I can tell you that virtually every military leader I ever worked for or worked with had no compunction giving honest advice and studied opinion to our civilian leadership when they were asked – and as often when they weren't.

If you’ve never been there, you may be under the misconception that we military members cease being loyal to our beliefs and to the Constitution when we put on the uniform of our respective branches, becoming some faceless automatons.

Bull. Under that uniform, we’re Americans. That means we’re as opinionated, disputatious, and cocksure as any other American citizen. We’re passionate about doing the right thing and, having seen the reality of war, we don’t enter into that state as lightly as others might. My guess is that these Generals spoke up forcefully and frequently to voice their concerns. But, like most others who serve, you won’t hear them complain while in uniform -- it violates the oath we take to support and defend.

…Which takes us to the other red herring: How does it "undermine civilian leadership" when a man or woman in uniform disagrees with their boss behind closed doors but, after being overridden by the boss the Constitution says has the right to direct them, closes ranks and supports that boss in public? Rather than castigate such men and women, we should grow more of them.

Of course, once that man or woman retires and no longer works for their former civilian boss, once they are no longer – willingly – bound by their oath and wearing the uniform, if they choose not to speak out, what disservice do they do to those young men and women they led for some 35 years or more?

There are two schools of thought here. One was voiced well by General of the Army Omar Bradley, the “Soldier’s General” and the first Chairman of the Joint Chiefs of Staff, who opted to "hold my tongue and keep my name out of the papers." On the other hand, his boss during the war, General of the Army and later United States President Dwight Eisenhower, took pains 3 days before he left office as President to warn the nation of the military-industrial complex.

I am solidly in the latter camp. It is my right to speak out, of course. I was once a Citizen-Soldier and a Citizen-Airman -- for the better part of my life. Now I am “just” a Citizen. One of the greatest honors that could ever be bestowed upon me is to be “just” an American citizen. I know that I have the right to speak out, but it goes beyond that. I believe I have the obligation to speak up on behalf of those still serving and to speak out against actions which place them unthinkingly in harm’s way.

Former Army Chief of Staff General Eric Shinseki spoke up on behalf of his troops and said, under oath to speak the truth before Congress just before Operation Iraqi Freedom, that he believed it would take several hundred thousand troops to stabilize the nation after the invasion – more than it would take to effect regime change and “win” the initial assault. Secretary Rumsfeld chose not to listen to this paratrooper and Ranger who had seen combat on two separate tours in Vietnam, earned the Purple Heart and the Bronze Star for Valor, served as the Commanding General of the 1^st Cav, and as the Commanding General, United States Army Europe.

And you know what? That was Secretary Rumsfeld’s right. It was stupid, in my opinion, to choose to listen to some neocon-inspired babble about how we would be greeted as liberators with rose petals strewn before us, rather than to the hard-nosed, been-there-done-that commanders who had spent a lifetime honing the Art and Science of War. But, under the Constitution, it was and is his right.

Without Iraq, Secretary Rumsfeld might have been remembered as a fine peacetime Sec Def, filled perhaps with a surfeit of McNamaraesque flights of fancy that the military would be better served if it were run like a corporation, but, like McNamara, a man who fervently believed that reining in the expense of a standing army was his necessary responsibility. Light, lean, and lethal sounds pretty darn good until the bloody, muddy reality of house-to-house combat, snipers, and IEDs intrudes.

But, no matter. He is still the Sec Def, a direct report of our Commander-in-Chief and the man charged with listening to the opinions and experiences of his military commanders, then making the decision as to which direction to pursue. He had the right to shunt aside General Shinseki. The classless, disrespectful, and imperious manner in which he did so may have bespoken a personality fearful of dissent and arrogant in execution, but the Constitution, and our oath to defend it, transcends the politics or the personality of our duly-appointed civilian leaders.

To speak out against the civilian leadership and appeal to the public while still wearing the uniform is inappropriate and in contravention of the oath we take as Soldiers, Sailors, Airmen and Marines. General McClelland discovered that when he disparaged President Lincoln, calling him a baboon and worse. General MacArthur discovered it anew when he decided it was his role to defy President Truman and attempt to influence policy in the stew of public debate. Both men were wrong, I believe, and paid for their foolishness and dereliction of duty.

But when we put away that precious uniform for the last time, it is clearly our right – and some of us believe it is our obligation – to speak up. If not us, who? Who better to listen to? Those who have been there or those who have not?

Don't be fooled by anyone who says, "Well, it's only six Generals out of the thousands and thousands of Admirals and Generals out there." That is completely disingenuous. It implies all Generals and Admirals know the SecDef and, of all those, only six did not endorse his decision regarding troop strength. This put-down conveniently overlooks the fact that, of the "thousands and thousands" out there, by Congressional limit, only 877 active-duty Flag Officers (Generals and Admirals) may serve at any one time. The rest are retired and may not have even been in service during the years the current SecDef was in office. Or they may be Reserve Flag Officers, most of whom support combatant commands and therefore never come in contact with the Pentagon (lucky devils) or the SecDef. Unless a Flag's duties intersect directly with SecDef, they can be in the Pentagon and never even see him. I exchanged greetings with the man a grand total of twice in my recent 2 1/2 year tour in the Pentagon -- and never briefed him or attended a meeting smaller than a Town Hall with him.

Of those 877, I'll wager 400 out in the commands have never met him and another 300 had about the same level of contact I did . That leaves 177 -- so it's really 6 out of 177, not 6 of "1000s and 1000s." And since most of them are still serving, we won't know what they believe until they retire. Of those who had as frequent a contact as these 6, how many believe he should have listened to the military on a military issue like post-war insurgency? 6? 60? 90?

It's important to consider only because of the derision voiced toward anyone who disagrees with the Administration. The last time we saw such intense circling of the wagons was for a President who was so paranoid he created an Enemies List. If one's position is well-considered and easily defended, then why not defend it instead of smearing men who only spoke out because they love their country and respect the lives and safety of the men and women still in uniform.

Speaking out as an American citizen is not an act of disloyalty, but of loyal opposition; in this case loyal opposition by men who have greater love of country -- and concern for those in uniform -- than of politics. Those in politics could learn much from them.

WHO *CARES* WHAT HAPPENS TO CALIFORNIA REAL ESTATE? -- Financial Affairs

We all should. For those living between the Sierra Nevada Mts. and the Appalachian Mts., a vast region where many people own their homes free and clear and most of the remainder have a solid fixed-rate loan: I imagine you must scratch your head when I advise that real estate prices will decline in over-heated areas *and it will affect you*. After all, your real estate never got “un”stable. Most of the houses occupied in this country are between those two mountain ranges. But most of the houses for sale (often by flippers and real estate agents selling to each other) are on the two coasts! And at Lake Tahoe, where I live, on the barely-sane fringe of the loopy Left Coast, there is an overhang of homes for sale; prices have declined; and realtors are engaging in cock-fights to see who gets the rarer and rarer new listing. (OK, maybe that last one is a bit of a stretch...)

Why does it matter, you ask? Why should residents of Omaha or Tishimingo care what happens in Income Village, Nevada; New Yawk, New Yawk; or LA-LA-land, California? Because. it’s all about flow of funds and the wealth effect.

But what if oil prices continue to skyrocket and all our new-found wealth goes to heat the house and take the kids to soccer?

What if China, Japan, and the rest of the world decide to diversify their holdings and buy Euros or gold instead of dollars? (With your gold holdings, you’re positioned well there, of course...)

What if inflation reaches 6%? Or 8%?

What if housing prices decline?

Forget East, South, West, and Midwest housing price and sales comparisons. You’d be looking at the wrong set of numbers. Homeowners from somewhere in America (who cares if it is “only” on the two Coasts?) removed $600 billion of their home equity in 2004, either via home equity lines of credit or refinancing. (Numbers aren’t in for 2005 yet, but they are probably even higher.) That’s not all bad -- in refinancing, some homeowners, those who didn’t go for interest-only or adjustable-rate mortgages, improved their cash flow a little by switching to smaller monthly payments. But $600 billion worth? I don’t think so!

Most of this money went to “cash-outs” -- dollars over and above the refinanced amount that temporarily went into homeowners’ pockets on the way to Hummer dealers, season tickets to the Niners (now there’s a great investment), and that case of Veuve Clicquot that makes us think we are living the good life. $600 billion is a huge amount of money. That would sustain all 54 nations on the continent of Africa for a year. Heck, it would almost cover both Kate Moss and Robert Downey’s coke habit for 6 months.

So homeowners (consumers) take the money and buy “stuff.” Consumer spending accounts for around 70% of GDP. It is clear that some very large part of total GDP over the past couple years has come from these mortgage cash-outs. In a real economic expansion, consumer spending is based on increased income, good investing, and savings.

Consumer spending based on borrowing from the paper profits on a house is a house of a different kind -- a house of cards waiting to fall. After the Veuve Clicquot is all gone (a sad moment, I know...), the Hummer is traded in for a Prius, and the Niners have a winning season, the debt remains. The debt always remains. But the home equity funny-money ATM is about to run out of dough. State and federal regulators are starting to restrict “liberal” mortgage lending. Rates are higher. And those cheap adjustables of a couple years ago are starting to ratchet up -- and on the most overstretched homeowners. Nearly 20% of the mortgages entered into in 2004 were to “sub-prime” borrowers. I predict these homeowners will soon become renters and those holding their paper will soon become accidental landlords.

Some stockbrokerage analysts say a decline in real estate will be a good thing because then all that speculative money will leave real estate and go instead into the stock market. They’re idiots. There won’t be any money. It’s borrowed money, based on the assumption that real estate prices will go higher. The bank will be expecting to have it repaid -- appreciation or no appreciation. When the cash flow dries up, the wealth effect caused by appreciating real estate prices dries up. That day marks the beginning of the next real estate bear cycle.

So, you ask, since you live in solid-values-based middle America; you weren’t dumb enough to borrow $300,000 just because your house appreciated $325,000; and you bought the Prius and a case of Bud instead of the Hummer and the Veuve Cliquot, why should you care that housing declines on the Crazy Coasts? Because when they raid The House, it doesn’t matter that you really were just the piano player. You’re spending the night in jail. The only difference is, in that analogy, the company you keep is much nicer.

I believe we are spinning toward the end of this party. If we do, and there’s any other factor present, like high oil prices, increased inflation, or a leadership vacuum (oops, too late), we could be vulnerable to a huge decline. I also think you and I are ahead of the curve in this thinking, so I expect to stay fully invested through March 2006, anyway. I don’t see a decline until the wealth effect of year-end wears off. There will be moments when the price of oil declines, probably a month where the Fed doesn’t raise rates, and other good, if fleetingly good, news along the way. Let’s make hay while the sun shines, but be prepared to roll it up quickly and get it in the barn before the rains come. < >

[This article written originally in Investor's Edge (R) (January 2006) and posted online at www.investorsedge.us.]

IS THE WORLD RUNNING OUT OF OIL? -- World Affairs

In the early 1850s, Samuel Kier, a Pittsburgh druggist, began selling bottled oil, an undesirable by-product of his father's brine wells as "Pennsylvania Rock Oil". (Brine wells were created by pumping water down a well and pulling up a salty solution, which was processed to extract salt, bromine, then used as a pharmaceutical, and calcium hypochlorite -- a form of bleach -- among other less-familiar products.) By 1855, he was advertising the scarcity of the oil: "Hurry, before this wonderful product is depleted from Nature's laboratory!" it read. Modern-day Pollyannas have been using this quote and others like it to denigrate the idea that we will run out of oil.

Modern-day Cassandras, on the other hand, find ample “evidence” that the world’s out-of-control overpopulation will strip the earth of every twig, blade of grass, and molecule of oil during our lifetime.

Both are wrong. But the Cassandras are closer to the truth. And they will be closer to the truth until and unless someone abrogates the laws of supply and demand. If you doubt the ability of manunkind to destroy his environment, take a look at this week’s headlines about Haiti and the Dominican Republic. Add grinding poverty to someone’s misconception (pun intended) that “Be fruitful and multiply” meant “be fruitful and multiply exponentially. Multiply like rabbits unchecked by predators until you have destroyed everything else I created.” The result is the mud-flowing, eroded, barren, wind-swept terrain known as Haiti. Wonderful people. Mis-conceived notions.

How does this apply to the amount of oil our children will have? Think China and India. If you think 7 million Haitians need to stay warm, might want illumination at night, or need to get from point A to point B, try 10 times that many -- or 100 times -- or 300 times, which is the number of people we’re talking about just in China and India. Shanghai alone has more people than all of Haiti.

To understand why this is a demo-trend that transcends today’s price per barrel of oil or tonight’s evening sound bites, this month we’ll devote virtually our entire issue to the history of fossil fuel production; an overview of all fossil fuels (not just oil); China, India, and the supply-demand equation; and the effect politics, wars, and alliances have on the mix; and what it all means to investors.

History

Contrary to what some US textbooks might have you believe, oil was not discovered by “Colonel” Edwin Drake in 1859, though he was a key player in the evolution of oil drilling. We’ve used oil for centuries. Oil wells were drilled in China, at depths of up to 800 feet, using hard bits attached to bamboo poles, for at least a couple centuries prior to the birth of Christ. Over the next couple thousand years, cultures all over the world collected seep oil (oil that oozed out of the earth at various points in the surface) to light their street lamps and more.

Marco Polo recorded his observations in 1264 in what is now Baku, Azerbaijan: "..on the confines toward Geirgine there is a fountain from which oil springs in great abundance, inasmuch as a hundred shiploads might be taken from it at one time." In 1264, Europeans and Asians knew about oil. So did American Indians, who collected it in seeps all across the country. Lest we think this industry is a fledgling, even the “new” technology of separating oil from oil sands was done as long ago as 1735 in France.

Before the American civil war, a Canadian geologist figured out how to distill kerosene from oil, thereby saving the world’s whales. That’s right. The next time some eco-Nazi tries to tell you you’re an evil person for using electricity or traveling in an airplane or staying warm in the winter, remind them that, prior to the 1800s, artificial light was provided by fire torches, tallow candles, and foul-smelling, atmosphere-polluting lamps that burned animal fat. In the early and mid-1800s, whale oil, with less odor and smoke than most fuels, became the fuel of choice. A powerful whaling industry developed to provide (mostly sperm whale) oil for lighting and other species of whale oil as lubricants for the machine parts of factories and trains. Some species were driven to the brink of extinction. The right whale was killed in the early 1800s at a rate of about 15,000 per year. (By comparison, Norway, the most eco-friendly nation you’ll ever visit, is reviled by environmental groups today. That nation kills about 700 whales a year, all for eating, from a species that reproduces at the rate of about 3 times that many each year. Norway considers this a renewable resource like lobsters and shrimp. Some eco-Nazis think it’s a sin to kill food to eat OR to use fossil fuels. Go figure.)

When a truly clean-burning kerosene lamp -- the first mass use of fossil fuels in America -- hit the market in 1857, its effect on the whaling industry was devastating. Kerosene (known then as coal oil) was cheap, abundant, easy to produce, smelled lots better, and didn’t spoil like whale oil did. The public abandoned whale oil lamps almost overnight. If petroleum products, such as kerosene and machine oil, had not appeared in the 1850s as alternatives to whale oil, many species of whales would have disappeared long ago. Population and economic growth in the 1800s and 1900s would have deprived us of the leviathans of the sea.

...which brings us back to “Colonel” Drake. A New York lawyer heard about druggist Kier's Pennsylvania Rock Oil and hired someone to see if Kier’s oil (more widely called Seneca Oil because members of the Seneca Nation collected it from seeps in Oil Creek in Pennsylvania) could yield lamp oil. It worked and lawyer Bissell obtained financial backing to form the "Pennsylvania Rock Oil Company", -- later the "Seneca Oil Company."

By coincidence, an out-of-work railroad conductor -- Drake -- was staying at the same hotel as Bissell and his partners in New Haven, Connecticut. Edwin Drake had a free railroad pass as a severance from his last job. With this as his sole apparent qualification, Drake was hired in 1857 to go to Titusville, a town on Oil Creek. His employers passed him off as a colonel to give their venture an air of respectability -- although he had no military service.

Drake’s contribution was to use steam-powered equipment used to drill brine wells for oil, as well. Although no gusher came in -- it was more of a seeper with oil brought up from about 70 feet down -- Titusville was transformed into an oil boom town, the first of many from Pennsylvania to Texas to California to Alaska, and today from Azerbaijan to Zaire and nearly everywhere in between. Names legend to oil wildcatters -- Adams Canyon, Shamrock, Blue Goose, Lakeview, Spindletop, Prudhoe Bay, the North Sea, etc. The hunt goes on.

Just What Is It We’re Hunting For?

Call it what you will -- black gold, Texas tea, dead dinosaurs, or whatever, “oil” means more than just “oil”. The term is used incorrectly but generically and frequently to mean any and all hydrocarbons -- the fossil fuels, so named because they are the agglomeration of dead bodies, diatoms, trees and plants that died and sank to the bottom of the swamps and oceans. There they formed layers of a spongy peat-like material. Over many millennia, the peat was covered by sand and clay and other minerals, which turned into sedimentary rock.

More and more of these layers piled on top of each other. As its weight increased, the excess water oozed out. Over many millions of years, the remaining biomass turned into coal, oil, or natural gas. At Investor’s Edge, we most certainly do not use the three terms interchangeably. There are times when we want to be buyers of coal, other times natural gas, and other times oil. Sometimes we want to own all three. And for the very long term (generations, not years) we want to always own at least some of each, as well as alternative energy companies in the solar, wind, biomass, and fuel cell areas. We refer to “energy” companies, not oil companies, when we label companies that seek to find, extract, refine, and distribute any of these fuel sources.

Supply, Demand, Politics, and Wars

I said above we are not influenced by the daily upticks or downticks in the price of oil. Most people buy energy stocks when they see oil prices rising and sell when they see them falling. While I believe we can time cyclical moves in the stock markets, there is no way anyone can foresee with accuracy over time the shifting sands of politics, wars, alliances, and encumbrances. I think I am an astute student of international relations, politics, enlightened national self-interest, and warfare. I have an undergraduate degree in the first and a Masters degree and a few decades experience in the last. I read voraciously. And yet, like most, I did not predict the violent overthrow of the Shah and his replacement by a theocracy in Iran, I missed just how much collusion there was between Saddam and those with whom he traded oil for guns, and did not prophesize the decision by Khadaffi to bring Libya into the 21st century as a more responsible nation.

Yet every one of these events had the potential to radically alter the supply and demand parameters of the world’s oil and natural gas. Just using these three nations as an example, Iraq has more proven reserves of oil than any of the nations on the earth except Saudi Arabia (about 260 billion barrels) and Canada (with whom, at 120 billion barrels) Iraq (115 billion barrels) is about tied.) When it comes to their (likely but not proved) reserve base, however, Iraq beats Canada and even Libya's vast natural gas reserve. Counting the tar sands, which are currently being profitably produced in Canada, both Canada and Iraq may yet prove to be bigger than Saudi Arabia.

You’ll hear terms like these thrown around on TV by know-nothings trying to impress. Just remember: In the energy business, “proven reserves” are that portion of total oil resources that have been (1) found, (2) developed, and (3) for which wells are drilled and some equipment is in place.

The “reserve base” is that part of a resource that meets certain industry-standard criteria related to current production practices (like grade, quality, and depth of a field.) It may include resources that have a reasonable expectation of becoming economically viable when more advanced removal technology and/or a better economic environment accrues. Some texts use the term “probable reserves” interchangeably with “reserve base.”

Finally, “‘reserves” or “resources” are used and mean whatever the heck the writer wants them to mean -- loosely, the amount of oil the writer can quasi-plausibly speculate exists. When the writer is an oil company’s accounting department, this leads to the final oil patch term, a “no-no.”

In addition to all that oil, Iraq has proven reserves of 110 trillion cubic feet (tcf) of natural gas. (Libya has proven reserves of 46 tcf and Iran, with 16% of the world’s supply, has 815 tcf of natural gas.)

Iran isn’t far behind in the oil category, either, with 88 billion barrels of proven reserves, and Libya, Africa’s biggest oil producer, brings up the rear with 29 billion barrels of proven reserves. To put this in perspective, the US has 30 billion barrels of proven reserves which, at current production levels, will last 10 years. Russia has 44 billion barrels in proven reserves. That’s 21 years worth. Both dates reflect zero new capacity.

Taking the macro geopolitical view is key to deciding how much, as an investor, to rely upon the price and direction of the price of a barrel of oil to make your buying decisions. Did you predict the revolution in Iran in 1979? If you didn’t, and you were out of energy stocks, by the time you blinked, they had skyrocketed. Did you predict the Iraqi invasion of Kuwait? The 1973 Yom Kippur War that led to OPEC drastically reducing the supply of oil? The Libyan decision to eschew its WMD program? If so, the US intelligence community and about a hundred oil companies would like to hire you! If not, you could have been badly whipsawed by each event.

I don’t discount the short-term impact on oil and gas prices of these events, but I prefer to invest based upon larger factors. Supply will come and go in the short term. OPEC will get in a snit and lower production, resulting in higher prices. A revolution occurs in Iran and the temporary disruption of world supplies sends oil higher. Libya rejoins the world and invites oil companies to use their money to explore and oil prices may fall. Saudi Arabia pumps like crazy in an election year and prices decline. But, like the chart in the lower left (used to describe the market itself in a previous issue), those are all merely sine curves around The Big Trend.

Will we run out of oil? Well, not right away. Supply will expand. We may get a big boost from new discoveries in the Arabian / Persian Gulf in natural gas, the Baku fields for oil, or new unexplored areas in previously despotic and relatively unexplored areas like Iraq. Oil sands and shale oil will add, at higher expense (but still wildly profitable with oil anywhere north of $45 a barrel), significant proven reserves. Coming to our senses and using nuclear, wind, and solar will help hugely. But the demand is growing even faster. The equation is simple: more bodies on earth, more motor scooters, more cars, more factories, and more travel = greater demand. Greater... than the supply.

[This article originally written in Investor's Edge (R) (June2004) and posted at www.investorsedge.us]

OPEC: DEAD MAN WALKING -- World Affairs

Of course, no one has told the Arabs that OPEC is dead yet. Or elected-dictator-until-the-next-coup Hugo Chavez of Venezuela. Or Iranian President Mahmoud “The Holocaust Never Happened, I Don’t Want Nukes, and I Have Some Oceanfront Property On Our Afghan Border You Can Buy Cheap” Ahmadinejad.
But then, those of us living through historic change are often too close to the daily trees to see the forest. That’s right; to us a small 1-year-old gray bird no bigger than a warrantless wiretap might look like, say, a 6-foot 78-year-old lawyer in a bright orange vest and cap.

OPEC is going down. What saved the whales from certain extinction in the latter half of the 1800s was the discovery of oil, an alternative to whale oil -- or, more accurately, the discovery of a way to get to the oil that had been seeping out of the ground for centuries by drilling for it, then refining it into something sweeter-smelling than whale blubber or some other animal’s fat. Many years later, what saved America’s manufacturers and farmers from running out of this new “rock oil” was the discovery of $2-a-barrel oil, sweeter and lighter than our own, beneath the sands of the Middle East. So we bought it. There are those who whine today that we “stole” it from them. Bull-honkers. I’ve been to the Middle East and negotiated with Arabs. They are brilliant, patient and practiced (over millennia) in the art of negotiating. They struck a good deal in 1930s dollars and they have struck a better one today. I have great respect for their negotiating skills and their business savvy.

I’m tired of propping up their tired old dictatorships with American dollars and American blood. I’m also tired of the whining by many OPEC nations that we Americans are behind all their problems. Nigeria, Venezuela, even Saudi Arabia could be a paradise on earth, with beautiful beaches and ample financed-by-oil irrigation. Instead, corruption is rampant, nepotism reigns supreme, and there is a victim mentality that destroys all initiative. As long as no one there takes responsibility for bettering themselves and their nations -- that is, as long as they blame the U.S. for every evil that befalls them -- there can be no progress. This alleged “culture clash” is less about culture and religion than it is about disenfranchisement and scapegoating. But that is about to change...

China may still need to buy Mideast and other OPEC oil, but the US has a new wave sweeping across the prairies, every bit as powerful as the one that replaced whale oil or the one that replaced U.S. sources of oil. We have conservation (see below), coal, nuclear and ethanol -- and the combination of these four along with new technologies to enhance them all means that, within this generation, we can wean ourselves away from OPEC.

I’ve written extensively before about coal and nuclear. Conservation is a given -- but not the kind of conservation where a President puts on a cardigan sweater and tells us to turn down the thermostat because our best years are behind us. I’m talking about conservation that comes from efficiencies and technological advances. Our appliances today, our cars, our air conditioners, our heaters, and a hundred other daily devices are now designed to use less energy. Forget freezing in the dark -- we must use our strengths in research and design to make products that conserve energy. Other nations put us to shame here. For example, in Tokyo, with about the same population as all of California, digital circuitry in everything from subway fare chargers to escalators automatically turn off when not in use.
Then there’s ethanol. Ethanol is the U.S. answer to forever-energy. It's clean. It’s green. It employs U.S. farmers, which might save a little sliver of America from real estate developers (can I hear an “Amen, Brother!”) It even runs in today's cars. You’re probably using a 10%-blend of ethanol and gasoline right now, whether you know it or not. If you weren’t, your price per gallon would be even higher. And if you own a Taurus, a Stratus, an Explorer, or a Chevy Avalanche or Suburban, for instance, your car is already equipped to run on an 85% mix of ethanol and 15% gas. Ethanol produces almost no emissions that might add to global warming. Most important, it comes from the Midwest, not the Mideast.

Historically made from edible corn or sugar cane (as it is in Brazil, where 3/4 of all new car owners use it or gasoline, depending on which is cheaper at the time,) research advances in biotechnology now allow us to make “cellulosic ethanol” from weeds, tree bark, wood chips, corn husks and agricultural waste. As long as the sun shines and we add a little water, we can grow weeds. (If the sun stops shining, we have way bigger problems, so we won’t address this straw man...) Burning ethanol instead of gasoline almost entirely eliminates acid-rain-causing sulfur dioxide. The funny thing is, using ethanol to power your car isn't new. Ask your grandfather. Ford's Model Ts were designed to run on ethanol. If not for cheap Mideast oil, today’s cars probably still would.

So why don’t more people use it? Because the distribution network was dismantled decades ago for two then-valid reasons: (1) Mideast oil was cheaper and (2) it used to be expensively labor-intensive to farm. Now Mideast oil is expensive and farming is cheap. Brazil is benefiting from its foresight: because their cars burn either ethanol or gasoline, whichever happens to be cheaper at the pump, the nation has weaned itself off imported oil. Why shouldn’t we? Are we the breadbasket to the world or aren’t we?

So. You figure Big Oil is behind some nefarious plot to keep us from using ethanol? We warned you those recreational drugs would make you paranoid. It’s BP (BP), Shell (RDS.B), Exxon Mobil (XOM) and Chevron (CVX) who are funding ethanol research. Remember this Investors Edge mantra: the only companies worth buying are those who know what business they are in. Is XOM in the oil business? No! It’s in the energy business. Knowing that makes all the difference. ARCHER DANIELS MIDLAND (ADM) is the world’s biggest producer of corn ethanol. ADM sells nearly its entire output to energy companies. Brazil, which figures it has saved an estimated $69 billion that would have gone to the Mideast but instead remained in Brazil to fuel an economic boom. As Ted Turner recently noted, "I hate to see the U.S. ten years behind Brazil, but that's probably about where we are." He’s not alone in his enthusiasm. Richard Branson, whose Virgin Group is starting an ethanol-inspired subsidiary called Virgin Fuels: "This is the win-win fuel of the future."
There are scores of websites devoted to this subject but, if you want to read what I believe is the best in-depth presentation (120 slides) in one place, Google “Biofuels: Think Outside the Barrel” by rock-star venture capitalist Vinod Khosla. It discusses well the economic and environmental issues... < >

[This article originally written in Investor's Edge (R) (March 2006) and posted at www.investorsedge.us]

ILLEGAL IMMIGRATION: THE QUID PRO QUO -- National Affairs

THE CONSTITUTION of the United Mexican States

[This will get me flogged in the public square of Political Correctness. It matters not that I am a staunch advocate of increasing LEGAL immigration. One does not lightly defy the insane zeitgeist that we are here to coddle felons in prisons and illegal residents on the streets. For a little perspective on how other nations deal with this problem, I thought I’d check the Constitution of Mexico. Here are some key provisions regarding foreigners...]

* Assembly & free speech: Non-citizens are proscribed from any demonstration or public expression of opinion about Mexico. To wit: "Foreigners may not in any way participate in the political affairs of the country." -- Article 33

* Employment: Forget about it. "Mexicans shall have priority over foreigners...for all employment, positions, or commissions of the Government in which the status of citizenship is not indispensable.” -- Article 32

* Religion: The Mexican constitution forbids immigrants & naturalized citizens from being a member of the clergy. "To practice the ministry of any denomination in [Mexico] it is necessary to be a Mexican by birth." -- Article 130

* Property rights: Again, forget about it. "Only Mexicans by birth or naturalization and Mexican companies have the right to acquire ownership of lands, waters, and their appurtenances, or to obtain concessions for the exploitation of mines or of waters. The State may grant the same right to foreigners, provided they agree...to consider themselves as nationals... Under no circumstances may foreigners acquire direct ownership of lands or waters within a zone of one hundred kilometers along the frontiers and of fifty kilometers along the shores of the country." -- Article 27

* Political representation: Foreign-born, even if naturalized, Mexican citizens may not become federal lawmakers (Article 55), cabinet secretaries (Article 91) or supreme court justices (Article 95). The president of Mexico (as in the US) must be a citizen by birth, but in Mexico his or her parents must also be Mexican-born, thus preventing a first-generation immigrant, many of whom have held elective office in the US, the right to serve.

* Gaining citizenship via military service: Standard in the US, it can’t happen in Mexico. "In order to belong to the National Navy or the Air Force...it is required to be a Mexican by birth. This same status is indispensable for captains, pilots, masters, engineers, mechanics, and in general, for all personnel of the crew of any vessel or airship protected by the Mexican merchant flag or insignia.” -- Article 32 [I couldn’t find the same language for the Army...]

* Citizens’ arrest of illegals: Given the hue and cry from Mexico's leadership about American citizens watching and reporting illegal entry into the US, I found this one particularly hypocritical: "In cases of flagrante delicto, any person may arrest the offender and his accomplices, turning them over without delay to the nearest authorities." -- Article 16

* Expulsion / due process: Foreigners may be expelled from Mexico at any time, for any reason, and without due process. "The Federal Executive shall have the exclusive power to compel any foreigner whose remaining he may deem inexpedient to abandon the national territory immediately and without the necessity of previous legal action." -- Article 33. Article 11 further guarantees federal protection against "undesirable aliens resident in the country."

Mexico, like every other nation -- including the US -- has the right to control its borders and regulate resident non-citizens from other nations. Personally, I’m for LOTS more immigration, especially from our closest neighbors -- albeit legal and skill-based, rather than illegal and need-based. But how can Mexico’s political leadership lecture the US on its immigration policy when their policies read like this? It’s time for an honest dialogue on this issue.

[Sources: about a hundred sites and cites on the Web, with special thanks to The Center for Security Policy's J. Michael Waller, Ph.D]]