The Real Keystone Decision

Dave Gonigam – January 19, 2012

  • Is that your final answer? Byron King on the real Keystone XL pipeline decision
  • S&P surpasses 1,300: Why Greg Guenthner isn’t celebrating yet
  • How the latest mutual fund inflow data point to a looming opportunity
  • Dan Amoss on why QE3 is inevitable, no matter what name it goes by
  • Pointless memos littering the floor of the NYSE… a different take on the college fund cutbacks… the dollar as the ultimate undoing of corrupt politicians… and more!

   “Once more unto the breach, dear friends, once more.

This might be a 5 first, invoking Shakespeare to set the tone for our daily missive… but the passage from Henry V, Act 3 is what Byron King cites in an email summing up the White House’s rejection of the Keystone XL pipeline.

As we went to virtual press yesterday, the Obama administration scotched plans to extend the existing Keystone pipeline, connecting the Alberta oil sands to the U.S. Gulf Coast — at least the current plans.

   In reality, it’s a decision not to decide… thus Byron’s citation above, delivered ironically.

“Obama recently signed a bipartisan bill,” he explains by way of background, “to extend the payroll tax deduction by an entire two months… through Feb. 28. Part of that important law included an automatic approval for the Keystone XL pipeline, unless Obama formally disapproved within 60 days.”

Yesterday, he declared he would not be held to a “rushed and arbitrary deadline” and stood behind a State Department finding that 60 days is not enough time “to assess whether the project, in its current state, is in the national interest.”

   “Really?” says Byron. “Securing long-term energy supplies from the world’s largest near-surface hydrocarbon deposit is not in the national interest?”

“Smooth relations and trade policies with Canada are not in the national interest? Thousands of jobs, building the most ‘shovel-ready’ energy project in North America, are not in the national interest?”

This has been a sore spot of Byron’s for a while: The prospect of tar sands oil flowing through a different pipeline, to Canada’s Pacific coast and then on tankers to China, something he labeled a “strategic energy disaster.”

   But that’s not what yesterday’s decision-not-to-decide means. “Obama’s people,” Byron notes, “are saying that, yes… they’re deferring Keystone for now. But after the election, they’ll work with TransCanada and find another way to build the pipeline.”

A few Keystone opponents concede as much: “Another ridiculous moment of political trickery” was the label applied by writer and enviro-activist Michael Leonardi. “What Obama did is leave open the possibility of authorizing the construction of a pipeline any time in the future, say just after the election?”

“Keystone will get built,” summed up Daily Resource Hunter editor Matt Insley during our morning editorial powwow. Just not right away.

In the meantime, other events are rapidly taking shape that add up to the rebirth of American energy. “This is far bigger than discoveries like the Bakken oil or Marcellus gas shales,” says Byron. “It absolutely dwarfs ethanol and windmill farms. And it has nothing to do with new types of alternative energy.”

Byron is busily putting the finishing touches on a new report you won’t want to miss. Watch this space…

   Major U.S. stock indexes are edging up this morning… pushing the S&P 500 further above the 1,300 mark reached yesterday for the first time in six months.

“Sellers are being put on their heels,” wrote Options Hotline editor Steve Sarnoff to his readers last night, “as buyers are pouncing on earnings news and the latest bailout plan to battle eurozone debt.”

“Contagion concern may return, but the strength of [yesterday’s] session implies the likelihood of higher prices down the road.”

The happy earnings news continues today: Bank of America returned to profitability, while Morgan Stanley cut its losses.

   “This market has flirted with several breakouts since the August crash,” our small-cap specialist Greg Guenthner notes warily, “and all have ended in disappointment.”

“Still,” he says, “it’s a relief to see a chart like this:”

The S&P is Greg’s most-reliable barometer for the broad market, and “despite the nice, clean break,” he says, “I’m not yet ready to go all in on the long side.”

The reason? The market action two days ago: “On Tuesday afternoon, the market hopped in its time machine and took a trip back to the not-so-distant past. Like too many days in late 2011, the market pushed to its highs of the day before 10 a.m., only to endure a barrage of selling in the afternoon. That’s not bullish action.”

“Sure, yesterday’s move above 1,300 helps the bulls’ case. And advancing stocks topping declining names at a rate of 4-to-1 doesn’t hurt. I would just like to see some additional confirmation in the small- and microcap names.”

   Consumer prices as conjured by the Bureau of Labor Statistics were flat last month, thanks in large part to falling energy prices.

The year-over-year change has receded to 3.0%… the third straight month that number has come down. But within that number are some substantial increases — food up 6% and clothing up 4.6%.

Meanwhile, health care rose 3.5% in the dreams of the statisticians. Did your insurance go up only 3.5% last year? Maybe with all the unemployed/uninsured people, it somehow cancels out…

If CPI were calculated the way it was during the Carter administration — the way John Williams at ShadowStats.com still does — the increase during 2011 would not have been 3.0%, but rather 10.6%.

   After a surge in the previous week, first-time unemployment claims have tumbled to 352,000 — the lowest level since April 2008.

The figures are notoriously volatile this time of year; the four-week rolling average shows only modest improvement, and nothing approximating a “normal recovery.”

   Housing starts for December came in below expectations this morning, down 4.1%. In the end, 2011 was the worst year on record for construction of single-family homes.

Building permits — the number that points to future activity — were flat.

   Factory activity in the mid-Atlantic is picking up this month. The monthly Philly Fed index rose slightly to 7.3 — the fourth straight positive number, after factoring in some revisions to previous months.

It was, however, less than the “expert consensus” was counting on.

   The new year has begun the same way it ended — with investors seeking sources of income payments. “Last week’s mutual fund flows,” says Jim Nelson of our income desk, “show a $1.1 billion net inflow of new investor capital into municipal bond funds.”

“That’s six straight weeks of inflows into that sector.” High-yield bond funds also benefited from the trend, with net inflows of $1.8 billion.

“Both munis and high-yield bonds,” Jim explains, “are typically sought only for their large income payments. Meaning investors are seeking yields wherever they can find them.” That will benefit the sort of income-paying stocks that are Jim’s bread and butter… and at an excellent time, he points out: “It’s dividend hike season.”

“This time of year sees the largest amount of dividend hikes as companies wrap up their fiscal year numbers and start looking at the next 12-month period. And this year’s hike season should be tremendous.”

“Not only do they want to entice more investors with higher dividends, S&P companies have a record $1 trillion of cash on hand right now. It’s not too hard to see that this first part of 2012 will host some serious spending sprees.”

“Over the next few months, we’ll see companies with large cash holdings look at acquisitions, share buybacks and, most importantly, dividend hikes.” Here’s how to best position yourself when the time comes.

   Gold continues to drift in the range where it’s been much of this week. At the moment, the bid is $1,654.

Silver is firming up a bit to $30.53.

   “More QE (printing money to buy Treasury debt) is a matter of when, not if,” says Strategic Short Report’s Dan Amoss, eyeing next week’s meeting of the Federal Reserve’s Open Market Committee.

It might not arrive next week, but arrive it will, Dan explains: “You need only consider the imperative to keep interest expense low for the biggest borrower of all: the U.S. government. The Fed’s zero rate policy has led to lower interest expenses, despite exploding Treasury debt.”

“Since late 2007, debt held by the public has doubled from $5 trillion to $10 trillion, yet interest expense on the debt has declined from $230 billion to $190 billion:”

“More investors,” says Dan, “will come to understand that everything they learned in college about Keynesian economic policies is invalid unless total systemic debt grows eternally. They’ll start to design portfolios for an environment of inflation or deflation, not a happy, ‘Goldilocks’ scenario.”

Dan’s taking sides: “Given the macro backdrop, and how governments and central banks are dealing with the limits of sovereign debts, I’m expecting inflation to get steadily worse.”

   This is the sort of thing you’d think would go without saying. But to say it anyway, the New York Stock Exchange is reminding traders that gambling on the trading floor is strictly prohibited.

“For example,” the memo reads, “a sporting event pool where the participants purchase participation in the pool and each of the persons who win pay the person who organizes and promotes the pool an amount of money equal to a percentage of their winnings would be criminal and violate Exchange Rules and Policies.”

That’s a mouthful — run past a conference room full of lawyers, no doubt — but we get the idea: No betting on the NFL conference championships this weekend. A spokesman said as much when pressed by The Wall Street Journal. “This is nothing more than a standard reminder on our policy,” he added.

The curious thing is that NYSE’s gambling policy, stated in full here, doesn’t appear to spell out any consequences for violators. Fail to display your ID badge on the floor, however, and it’s $250 for the first offense and $500 for the second. Ditto for smoking or “unauthorized photography.”

Hmmm….

   “And the problem is?” a reader writes in reply to our mention yesterday that workers are cutting back on contributions to their kids’ college funds.

“You mean, kids might not be able now to go to university to come out as obedient little Marxists and/or ‘Yes we can/Yes we have no bananas’ chanteurs et chanteuses? Horrors!”

“Oh, well. I’m sure the socialists will just up our taxes even more to keep in beans… er, make that caviar while starting earlier retirement. Even on the high school level, I have one family member who will retire around age 57, making $7,000 per month — or so that person thinks.”

“I’m voting with my feet as soon as I can — maybe the education mafia can all tax and live off each other… sure ain’t gonna be me.”

   “They say that ignorance is bliss,” writes a Texas reader of the Keystone decision. “Obama and his gang of czars that made the incredibly stupid decision to nix the pipeline must be smoking opium.”

“This country needs access to oil and gas that is not connected to the Middle East; we need jobs that could be created, versus a stimulus package that does nothing but increase debt. We already have many pipelines in this country, so no big deal to add another for the stress relief it would provide once the Middle East turmoil turns ugly.”

“Saber rattling by Iran over the Hormuz Strait and Obama turns down access to Canadian resources?? Just incredible!”

   “It would be interesting to know,” adds another, drawing on another item in yesterday’s issue, “how many members of the ‘swamp of D.C.’s parasitic industry-conflicted bureaucracy,’ plus members of the White House staff and friends took the opportunity of the past few weeks to purchase options on land along the alternate route through the Nebraska’s Sandhills region, which the president has now signaled would likely receive his approval for the pipeline. My guess is a lot!”

   “D.C. versus Silicon Valley…” writes a reader in reply to another item yesterday. “Well, almost.”

“I think that it is (no longer — remember the National Defense Authorization Act) safe to say that the White House and the STOUCD (Slime That Oozes Under the Capitol Dome — you call it Congress) have sold out not only to the financial industry, but also to the entertainment industry, and spreads its legs for any other industry that showers D.C. with moolah.”

“I only hope that the slime is getting paid off in U.S. dollars — now, that is poetic justice!”

The 5: That will be their final comeuppance, no? Unless they’re truly evil and are secretly following the kind of wealth-preserving guidance we offer here. Wouldn’t put it past ’em some days…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Do you want to learn how offshore investing affects your estate planning… and get the information direct from Bill Bonner’s estate planner?

You’ll have a chance coming up in March when Addison hosts our first-ever conference at Rancho Santana on Nicaragua’s stunning Pacific coast.

All things offshore will be on the table: how money you currently have in tax-deferred retirement accounts can be parked overseas… legal and logistical hoops… and, as noted above, estate-planning issues.

The dates are set: March 21-25. We’ll announce the full speaker lineup and other details by early next week. But if you already know you might be interested, you should act now: Only 30 people will be able to take part in this exclusive gathering.

If you want to be considered for attendance, please call Kristen Palmer at (800) 708-1020… and she’ll add you to the list.

rspertzel

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