Dave Gonigam – June 13, 2012
- The failure of the North Dakota property tax revolt… and why it’s an excellent sign for energy investors
- The one factor that skewed today’s economic numbers
- Jamie Dimon hoisted by his own petard before Congress: Why the “Volcker rule” is a good thing even if you support “a free market system”
- A revenue raising/petty tyranny duo: The swearing tax… and the $10,000 unmowed lawn
- (Still) more tales of home auction fraud… a reader tries to put one of our charts in context… an important announcement about your continued receipt of The 5 Min. Forecast… and more!
So much for the property tax revolt in North Dakota.
The referendum that proposed abolishing property taxes statewide? It didn’t just go down in flames, it left a smoking crater in the earth.
Seventy-six percent of people the people who showed up to vote yesterday voted “no”.
From the get-go, the initiative looked well intentioned but ill thought out. If passed, the state was required to make up the revenue lost by local governments… somehow. That wasn’t ever specified.
Admittedly, we’re watching from a distance… but that provision sounds like a recipe for a state power grab. “North Dakotans have long been fans of local control,” says Connie Sprynczynatyk of the North Dakota League of Cities — which, for the record, opposed the referendum.
But our interest in this election goes beyond issues of taxes and self-government. The timing of the proposal — the fact it even came up at all — suggests a significant investment opportunity.
We’ve examined it before… but it’s worth looking at it through the prism of this vote.
“The economic boost of the new oil boom would have made this the perfect time for North Dakota voters to ban the property tax,” says a CNN report paraphrasing a main argument of the referendum’s supporters.
As we noted last month, North Dakota has surpassed Alaska as the nation’s No. 2 oil producer, behind Texas.
As a result, North Dakota’s tax revenue shot up 44% last year. The 50-state average was only 9%, according to the Tax Foundation.
Indeed, from 1997-2011, North Dakota tax revenue has grown an average of 10% a year. The average across the entire nation is 4%.
But the “shale revolution” isn’t limited to oil from the Bakken formation in North Dakota. Which is what makes it so potentially lucrative.
The natural gas shale boom will create 455,000 jobs between 2010-15, according to a study out this morning from IHS, an energy research group.
More than half of those jobs will be in four states — Texas, Louisiana, Colorado and Pennsylvania.
The benefits go beyond jobs and economic growth, says IHS researcher John Larson: “We are creating geographic diversity, which should, for example, help guard against the effect of hurricanes in the Gulf of Mexico.”
The tax revenue and the jobs that come from shale plays reinforce a critical element of Byron King’s outlook: “Government regulation and bickering politicians can’t stop it,” he says. “In fact, they secretly want it — it’s the answer to their prayers.
“Not even OPEC, die-hard environmentalists or a European banking catastrophe can stop it. It would be like trying to stop the sun from rising.”
Nor can they stop the resulting profit opportunities. There’s still time to hitch a ride on the prosperity of North Dakota’s Bakken… and Pennsylvania’s Marcellus… and the Utica shale that lies beneath the Marcellus and is even bigger.
Heck, the energy industry has barely begun exploring the Utica’s potential. So it’s not too late to profit from the shale revolution.
Byron has put together a basket of 11 stocks poised to perform best. They’re laid out in a package of special reports that go to every new reader of Outstanding Investments — still the No. 1 performing investment advisory of the last 10 years as ranked by the independent Hulbert Financial Digest. Access here.
Major U.S. stock indexes are down today, but not much. The Dow is still comfortably above 12,500 — which we see is 500 points higher than it was a year ago today.
Traders are chewing on a couple of domestic economic numbers…
- Producer prices: Down 1% in May, according to the Bureau of Labor Statistics. Almost all of that is a function of oil prices falling $20 a barrel during the month. The year-over-year rate of growth continues to slow
- Retail sales: Down 0.2% in May, according to the Census Bureau. That’s still up 5.3% from a year earlier. Here too the numbers are skewed by falling energy prices, although those pesky “seasonal adjustments” also distort the picture.
“Jamie Dimon’s a crook,” yelled a heckler during one of the few enlightening moments of a hearing on Capitol Hill this morning, featuring the J.P. Morgan Chase CEO as star witness.
Was he sorry about JPM’s $2 billion trading loss? Yes. Did he consider the conduct of the Chief Investment Office that carried out the trade reckless? Yes. Did he take personal responsibility for what happened? Hell no!
We’re not sure how that squares with Sarbanes-Oxley, the post-Enron law that, among other things, makes CEOs personally responsible for implementing risk controls and monitoring their compliance. (Maybe there’s a too-big-to-fail clause we missed?)
OK, there was one other interesting moment: Asked whether the “Volcker rule” might have prevented the loss, Dimon conceded, “It may very well have stopped parts of what this portfolio morphed into.”
We’ll back up to explain some regulatory ephemera as succinctly as possible: The “Volcker rule” is a section of the 2010 Dodd-Frank legislative monstrosity, named after the former Federal Reserve chief Paul Volcker. It would ban “proprietary” trading by banks — that is, bets the banks make with their own money.
Five federal regulatory agencies are deciding how to implement the Volcker rule. Dimon has been among its most vocal critics.
In this, he’s been joined by outfits like the Heritage Foundation: “In a free-market system, banks as well as businesses are free to take risks, which result in either successes or failures, profits or losses,” says a recent Heritage blog entry.
Just one problem with that: “It is overlooked by the opponents of the Volcker rule that the present banking system has nothing to do with free banking and thus a free market,” says Dr. Frank Shostak of Applied Austrian School Economics.
“What we have at present,” he wrote recently for the Ludwig von Mises Institute, “is a banking system within the framework of the central bank, which promotes monetary inflation and the destruction of the process of real wealth generation through fractional-reserve banking.”
“In the framework of the present monetary system, in order to reduce a further weakening of the real wealth-generation processes,” he concludes, “it is necessary to introduce tighter controls on banks.”
Dr. Shostak is a fascinating fellow; he’s among a handful of economists who use a remarkable forecasting tool that lends insight into both the economy and the major asset classes. Addison will reveal all in the next issue of Apogee Advisory, coming early next month. Not a subscriber yet? Here’s where to sign up.
Gold has moved little in the last 24 hours. It’s at $1,618. Ditto for silver, only two pennies shy of $29.
It’s come to this: a swearing tax. Time to add to our ongoing chronicle of the unholy alliance between petty tyranny and the grab for more local tax revenue.
Citizens in Middleborough, Mass., voted 183-50 at a town meeting Monday night to impose a $20 fine in hopes of ending an epidemic of “loud, profanity-laden language used by teens and other young people in the downtown area and public parks,” in the words of an Associated Press story.
“Damn Puritans,” quips Addison — who, we hasten to point out, is a native New Englander with a lineage going back to, well, Puritan times.
The fine is much stiffer if you have an unkempt lawn in Massapequa Park, N.Y.
Effective immediately, according to WCBS-TV, “If your lawns aren’t mowed, if dumpsters are full, gutters are broken, shopping carts are unattended, windows and doors are boarded banks or homeowners face: $250-1,000 fine for the first offense, $2,500 plus up to 10 days in jail for the second and $10,000 and 15 jail days for the third.”
“I think this is a type of place,” says one homeowner, “I live here because people help each other out, not because they report each other. If it’s an elderly couple that’s having problems maintaining their property, I think we should help them out. I don’t think we should fine them $1,000.”
Massapequa Park, evidently, has a problem with foreclosures. Somehow, we suspect that bankrupting old people to the point they’d have to give up their homes won’t help the problem…
“We bought a Veterans Administration repo house,” writes another reader with a tale of real estate auction fraud, “through an auction process (realtor involved too) directly from the VA in 2001 (not a misprint).
“We invested a lot of time and money to make it livable. The place was a total dump, but in a great neighborhood. One day while my brother was working on it, a man pulled up. He got out of his car and started to walk into the house. (Everything was totally open because we even had to replace the front door!)”
“My brother asked him what he was doing. He said the house was listed on the VA site with a case number and close deadline for bids to be accepted. He was inspecting the property to consider making an offer. I promptly checked out the website. It was listed on the site again! I called them and it was removed the next day.”
“The whole experience made me wonder about the title process, foreclosures and ownership records. (That was my first home purchase.) We have not had any issues since, but still I wonder. We still ‘own’ the house as a rental. It remains the best investment I have made in my short lifetime.”
“Bear in mind, this was in 2001. I shudder to think about the record keeping during the 2008-11 frenzy of foreclosures. Scary stuff. The more things change, the more they stay the same…”
“I realize my comment might just be added top-dressing,” chimes in another after yesterday’s round of auction tales, “but have we actually come to the point where we access Google to find trustworthy versus scams???”
“I mean, we’re all busy doing whatever we do chasing dreams and deals. My point is if we aren’t willing to do a search or critical due diligence — shame on us — and the $350 scam is your just desserts.”
“Much as I enjoy most of your 5 Min Forecasts,” a reader writes, “Monday’s chart from Greg Guenthner is sadly lacking in critical comment.”
“It needs some further rationale applied to it — i.e., what caused the rallies off the second drop? Why QE1, QE2 and Operation Twist, of course. That is why you need to be very careful in expecting another such operation.”
“I would have expected you guys to have seen that as an obvious comment to make — as you have already commented on your concern with the similarities of the market moves with earlier years.”
“And then we have Spain and all that, but the U.S. and U.K. are, of course, in far worse states, as you occasionally point out.”
The 5: Actually, Greg and Jonas are in the camp that does not see another round of QE coming next week. We laid out their reasons last month, but we’ll revisit them next Tuesday in advance of the Fed announcement.
Cheers,
Dave Gonigam
The 5 Min. Forecast
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