Get in the Game? Get Real!

by Addison Wiggin – February 10, 2011

• Obama urges business to “get in the game”… The 5 and Odyssey Marine suggest why they’ve been on the sidelines

• China plows another $5.4 billion into Canadian fossil fuels

• Sarnoff on an “awfully interesting” market and where it goes from here

• Wheat, corn, soybeans hit 2½-year highs… What’s behind the latest upsurge

• Readers inquire why Somali pirates don’t get their just desserts… We supply a “politically correct” answer

“I want to encourage you to get in the game,” the president told CEOs assembled at the U.S. Chamber of Commerce across the street from the White House earlier this week. “Today, American companies have nearly $2 trillion sitting on their balance sheets… My message is now is the time to invest in America.”

Ah, if only it were so simple. We find ourselves in a pickle this morning. Somehow, we’ve veered off the track of providing you with incisive investment recommendations into the quagmire of presidential puffery… we apologize.

In an effort to extricate ourselves, we’ve contrived an experiment… with the hopes that we can be done with this debate and get back to opportunity ASAP.

What follows is, more or less, a conversation consisting of a speech given by the president asserting that the United States must be the best place on Earth to do business. And the response by an entrepreneur faced with the reality of doing business in today’s post-crisis regulatory environment.

The setting: The administration’s own Small Business Administration issued a study last year that says businesses with fewer than 20 employees are stuck with regulatory costs 42% higher than firms of 20-499 employees.

And when it comes to environmental regulations, the cost to small business is 364% higher. Tax compliance? 206% higher.

“These findings should anger us all,” wrote Gary Shapiro, president of the Consumer Electronics Association. “Over the past decade, small businesses created 70% of jobs in this country, and we are looking to them again to help lead us out of the current economic downturn.”

“America’s success didn’t happen overnight,” the president stated in one of the ‘duh’ moments of his Chamber speech, “and it didn’t happen by accident. It happened because [of] the freedom that has allowed good ideas to flourish, that has allowed capitalism to thrive; it happened because of the conviction that in this country hard work should be rewarded and that opportunity should be there for anybody who’s willing to reach for it.”

“Yes, Mr. President!” replies our friend Greg Stemm, CEO of Odyssey Marine. “We did ‘get in the game,’ hired lots of people, innovated and created a new industry out of wasted resources lost for centuries at the bottom of the ocean and abided by all applicable laws — and, I am sorry to report, the U.S. Government is ‘encouraging’ us by trying to hand over the fruits of our labor to another government.”

We’ve recounted the sordid tale many times, but for reference. The WikiLeaks cables revealed back in December that both the Bush and Obama administrations sought to lend a hand in turning over Odyssey’s Black Swan find (some $500 million in coins) to the government of Spain, in exchange for a painting in Madrid claimed by the estate of a U.S. citizen.

“Your administration,” Greg continues, “is trying to change long-standing U.S. government policy and is ‘reinterpreting laws’ midstream to appease a foreign government, at the cost of hundreds of millions of dollars to U.S. investors — hundreds of millions from our ‘balance sheets’ that we could unleash to create new jobs.

“It even appears that our own government was offering to ‘assist’ a foreign government in our courts to literally steal hundreds of millions of dollars from the ‘balance sheet’ of the U.S. shareholders who earned it. The U.S. government is helping to ‘return’ property that the foreign government never owned or had any legal or ethical claim to.”

“We know what it will take for America to win the future,” continued the president as he courted the Chamber leaders. “We need to out-innovate, we need to out-educate, we need to out-build our competitors. We need an economy that’s based not on what we consume and borrow from other nations, but what we make and what we sell around the world. We need to make America the best place on Earth to do business.”

“It’s one thing when bureaucrats are beating you down,” Greg replies. “You learn after a while that this is just politics and business — and sometimes you happen to be in the wrong place at the wrong time.

“It’s quite another thing when the president asks you to ‘get in the game’ while the people under him go to great lengths to create problems for your company.”

We’ve been following Greg’s trials and tribulations with the U.S. government in a documentary film we’ve just submitted to the Tribeca Film Festival. With any luck, we’ll get in and finish the project by the end of April.

For us, Odyssey serves as a proxy for the situation many entrepreneurs across all industries face. The details of their specific challenge may be unique. But their effort to create and grow a business in an increasingly hostile environment does not appear to be so.

We’ve published the complete response Greg wrote to the president below. And thank you for letting us get this off our chest.

Meanwhile, China’s biggest energy producer is buying its first stake in North American natural gas. PetroChina will buy 50% of Encana Corp.’s Cutbank Ridge assets for $5.4 billion. That gives China access to gas coming from 635,000 acres in Alberta and British Columbia.

If you’re keeping score (and we are), that’s $46 billion in total energy acquisitions by Chinese firms since last year. Nearly a quarter of that is in Canada alone; Sinopec paid $4.5 billion to ConocoPhillips last year to pick up a 9% stake in Canada’s biggest oil sands project.

[Ed. Note: These deals will no doubt be the source of much debate at this year’s Investment Symposium in Vancouver, B.C. (July 26-29, 2011). We hope you’re making plans to join us now… the event sells out quickly, as space is limited.

Our advance team, namely symposium director Bruce Robertson, is making his way back from Vancouver, as we speak. He’s finalized the contracts necessary to host this year’s event and we’re ready to start promoting it. If you know you want to join us, we recommend you register now, before the line forms and the price of entry goes up… call Barb Perriello at (800) 926-6575 and tell her you want the discount Addison is referring to.]

Major U.S. stock indexes plunged on the open today, but have recovered some of those early losses.

Among the factors weighing on the market: Cisco turned in better-than-expected numbers… but happened to mention its routing and switching revenue (that is, its high-margin operations) was down 7% for the quarter.

“Things are getting awfully interesting, as stocks push to recovery highs,” writes Options Hotline editor Steve Sarnoff. ”We’re seeing measures of volatility extremely low. This has me on watch for a coming increase in volatility.

“We are seeing conditions that would warrant a serious correction coming soon to markets near you. Negative divergences are developing…China is pressing the brakes on its speeding economy…European debt worries are returning…Egyptian unrest is spreading.

“But demand and liquidity are keeping the bulls in charge. The U.S. dollar is weak, and we may be nearing the point where it becomes clear, even to the staunchest bond bulls, that the long-term down trend in rates is broken.”

Steve’s is on a roll again in 2011. He’s made four recommendations so far, and the average play is up 25% in just 10 days. One is up 52%. It looks as if Steve is on his way to another year of 12 or more plays that can double your money or better. Learn more about Options Hotline here.

The recent run-up in Treasury rates is taking a rest. The yield on 10-year notes peaked yesterday at 3.72% and then retreated after a decent 10-year auction and soothing words from Fed chief Ben Bernanke about inflation remaining at bay.

We kid you not… The 10-year is back this morning to 3.68%.

Gold backed off overnight, too. But has now returned to roughly where it was 24 hours ago, at $1,365. Silver has picked up a nickel, to $30.25.

If you’re looking for indicators that we’ll avoid a double dip in housing, you won’t find them in the latest data points…

• The pace of foreclosures is picking up again, ever so slightly. RealtyTrac says the number of filings grew 1.4% from December to January. Bank repossessions grew 11.9%. The hangover from the robo-signing scandal may be wearing off.

• 27% of single-family homes with a mortgage are now underwater, according to Zillow. That’s 15.7 million “homeowners” who owe more than their house is worth. The median price of a single-family home is now $175,200, the firm reckons — down 27% from the June 2006 peak.

“The grain rally surged again yesterday with new 2½-year highs in corn, beans and, most importantly, wheat,” says Resource Trader Alert’s Alan Knuckman.

At $8.87 a bushel, “Wheat is closing in on the $9.00 target of the 50% recovery resistance from 2008 highs to 2009 lows.” Blame the most recent move on drought in China and wheat purchases by governments hoping to keep Egypt-scale protests from breaking out in their own backyards.

Just this morning, Alan recommended taking a wheat trade off the table for potential gains of 216%. Keep an eye out next week for a special announcement on how you can join Resource Trader Alert… and also gain access to two more of our best-performing services.

We bid farewell and shed a tear this morning for a staple technology now fading into the past.

2011 marks the first year since — well, probably the 1970s — that you can’t order a car with a built-in cassette deck. Lexus was the last make to offer it, and 2010 was the final year.

Aftermarket models are still available if you can’t bear to part with that mix tape your ex-girlfriend gave back to you when you broke up. But the age of the mix tape has at last been supplanted by iPod playlists.

“Now the question the automakers are asking is,” says Phil Magney of the industry research firm IHS iSuppli, “how long has the CD got to go?” How long, indeed?

“As an archaeologist who specializes in amphoras (transport jars) of the Classical Greek period,” responds a reader to Odyssey Marine’s effort to introduce a commercial model into shipwreck salvage, “and as one whose work more often than not involves shipwrecks, I would suggest that there is a clear distinction between those who seek profit from shipwrecks and those who seek to gather all traces of material culture and to then read them in such a way as to increase our understanding of history.

“Because almost all amphora handles were stamped with tax information and because there are differences in design predicated on where any amphora was made, archaeologists have been able to understand the role of trade in ending the Greek Dark Ages as well as to trace the economy of the Greek city-states, and, in doing so, help explain why Greece failed to form a unified nation. Amphoras have no value on the open market. However, I have witnessed far too many shipwrecks that have been looted by for-profit archaeologists who have destroyed such junk items as amphoras.

“Frankly, just as the Victorians collected mummies for afterdinner entertainment without regard to what they were destroying, commercial treasure hunters destroy what they consider valueless material culture. The goals of the commercial archaeologists and the scholarly archaeologists are just too disparate to co-exist.

“The difference is clear: For-profit archaeologists want to make money and are looking for booty. Once you introduce a profit motive, the entire paradigm collapses. What makes leaving archaeology to those who are neither interested in making money nor selling the material culture they find seems blatantly obvious. Or do you really think that history has no value?”

The 5: This is exactly our point. You’re asserting that a person seeking profit cannot also value history.

We’re not experts in the field by any means. Nor do we mean to beat a moribund horse. But we know that in their lab in Tampa, Odyssey has rows of amphoras that they’ve preserved to the highest standards of the archeological community. And have published their own findings on these artifacts because the scholarly journals refuse to print research from for-profit institutions.

Likewise, Odyssey employs a world-class team of historians, archeologists and oceanographers to locate and excavate the wrecks they’re seeking, including the gentleman who helped “raise” the Titanic. You think that simply by choosing to work for a for-profit company they lose their interest in history and its preservation?

Right now, there is a movement afoot to strip any archeologist of their professional credentials if they go to work for a commercial outfit. How does that make any sense? Wouldn’t that encourage exactly the kind of ignorant looting you’re worried about?

“I am a contractor in Michigan who recently has been turning down work,” a reader comments on the state of the economy. “Why, you might ask? Over the past three years, I have had to reduce my work force from eight to four. Each reduction was a painful, sleepless thing for me. These people need their jobs.

“What I have learned is to become much more efficient with less (profit margins up). The phone has been ringing off the hook recently, but I have chosen to become more selective, rather than add employees to meet demand.

“I am not sure why we have had so much action recently. I think the masses are falling for the debt-fueled recovery. I believe that most small business owners have the same attitude as I do: Increased regulation, higher taxes and forced health care benefits are not a good recipe for small business job growth. I personally believe our days of reckoning are coming. With your help, I have been preparing.”

“Am I missing something with this oil tanker pirate thing?” a third reader asks, changing tack. “I figure if I operated an oil tanker, I’d enlist the help of one ex-special forces trooper as insurance. I think that one (well-trained) fellow with one crane-mounted minigun could easily repel pirates at sea.”

“For the life of me,” adds another, “I can’t understand why the various governments of the world don’t simply allow the crews of the tankers and other vessels sailing anywhere near Somalia to have effective small arms to repel a pirate attack.

“A couple of .50-caliber sniper rifles and some proper training on their use on the tanker just taken would have prevented these attacks and saved millions of dollars in goods from being seized. Political correctness run amok.”

The 5: That’s the crux of the issue. “There are two barriers preventing defensive armament of merchant shipping,” according to gun rights analyst Dave Kopel of the Independence Institute.

“A ship flying the American flag is governed by American law, which of course allows American crew members to possess arms. But the vast majority of commercial shipping these days is on ships that are registered to other flags, such as Liberia, Panama, Greece, the Bahamas, Hong Kong or Turkey. A permit to own a firearm for defensive purposes is not necessarily easy to obtain from such governments.

“Also, territorial waters extend 12 miles from a nation’s coast. A ship that enters a nation’s territorial waters must obey that nation’s laws, including the gun laws…

“Plenty of foreign ports ban arms on any nonmilitary vessel.”

“It seems the Somali pirates never take over ships headed to China,” adds another reader. “I wonder why. Payoffs? Fear?”

“Those girls are not flat,” a reader writes after seeing our note yesterday that “stocks were flat as a Victoria’s Secret model.

“Victoria’s Secret normally uses much curvier models than you’d typically see on a runway,” he says. ”I’ve done my DD on this.”

The 5: Is that ‘due diligence’ or… a measurement?

Cheers,

Addison Wiggin

The 5 Min. Forecast

P.S.: George Soros and T. Boone Pickens don’t agree on much politically. But they agree on one of the best opportunities in the energy patch in a long time. They’ve both taken stakes in the “special situation” that recently came on Chris Mayer’s radar.

For now, shares can be had at under $3.50… but probably not for very long. Chris shares all the details here.

Below, a 5 exclusive, following up on the president’s speech to the U.S. Chamber of Commerce.

“I guess he’s speaking to me as a CEO of an American company,” says Odyssey Marine CEO Greg Stemm, “so I’d like to respond in an open letter to President Obama: