Where is the US economy headed?

@cicerone imposter,

He's probably pinin' for the Fjords!

http://www.youtube.com/watch?v=e6Lq771TVm4

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The Dow lost 85 points today based on lackluster economic news and increasing fear of a slowdown in China.
The dollar fell to a 3-year low against a basket of other currencies.
I warned a week or so that silver and gold look ripe for a tumble in my opinion. Silver fell 4% today bringing the price down 20% in the last week. Spot gold is also down to about 1514 and seems to be pulling back in sympathy to silver.
Part of the "problem" is that the market authorities have tightened the margin rules, meaning that the amount of money that gamblers can BORROW to invest has been reduced relative to how much of THEIR OWN money they must put in. That is causing some people to sell to get the ratio in order.
Finally, for any conspiracy theorists reading this far, our old friend George Soros, the puppeteer pulling the strings over Obama, is reported to being a big seller of silver and gold lately. I can't prove that, though.

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@realjohnboy,

rjb, I don't remember when it was, but recently, that I encouraged people to sell their gold.

I don't understand people who have shown great value increases that almost doubled their investment to hang on further. Greed gets them every time. When people have the opportunity to increase their original investment by over 75%, it's time to sell and take your profit off the table. After paying commissions and taxes, you still gain 50%+. (It averages out to about 16%/year; about the best return one can get from most investments in today's investment market.)

Most people never learn that simple lesson.

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Good evening. A week or so ago we got into a bit of a discussion about federal support of energy producers. We mostly talked about the oil industry and then we kind of got hung up on the "depletion allowance." A few days later I found a long article on the issue. My new home printer said it couldn't find my computer (3" away!) so I emailed the article to my shop and promptly forgot about it until yesterday. I printed it out. It is 6 pages long, single spaced. And quite dull reading, to put it mildly.
The article appeared in the January/February 2011 issue of Washington Monthly. The title is "Get the Energy Sector Off the Dole." The author is Jeffrey Leonard. He is the head of the Global Environment Fund, which invests in green energy and is the author of a number of books on energy policy.
Deep in the article which covers every type of energy production he advocates the abolition of federal support for EVERY potential source of energy production, including for, in his words, green renewable sources which, alas, can have some "perverse outcomes."
I can provide some stats he cites on government support of the energy industry if anyone is interested. Or take the time to read the full article and comment.

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@cicerone imposter,

Quote:

rjb, I don't remember when it was, but recently, that I encouraged people to sell their gold.

I remember ci. It was when gold was at $1,495. It is now about $1,517. But it was $1,575 on May 2 at 12.00 oclock New York time.

Would you have panicked is what I wish to know at $1,575.

I'm staying in until I see any signs that it is time to go. Which I don't yet. What signs do you see for your sell signal? I trust it isn't sour grapes.

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@spendius,

Thanks, Spendi. I have no dog in the fight re gold/silver. I went looking for an easily readable chart covering the last month, but what I found was way too technical for most of us.
I genuinely would appreciate your observations of that market in the next few weeks. It could get pretty wild.
If I may ask, are your investments margined? You don't have to answer, of course. Thanks.

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@realjohnboy,

So, did you find anything in the article that led you to believe that O&G depletion allowed anything other than legitimate expenses? This is one of the issues I was almost interested in enough to track down myself.

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@spendius,

No, spendi. That's all future speculation that nobody can forecast. The only thing that's for sure is that selling would have provided a handsome profit based on most investments of today.

Hoping it'll go higher is what most greedy investors do, and most lose.

By selling, you show a good gain, and you don't lose your sleep in the future.

Bank that money, and treat yourself to a good meal with a great bottle of wine to celebrate.

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@cicerone imposter,

Still, when your cab driver starts pushing a particular investment, it is time for a portfolio review. You are moving into 'bubble' territory.

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@roger,

The only time I use a cab is when I'm in a foreign country where I don't have to sell my house to get a cab. However, there are some countries where one must be careful, because of the fraud perpetrated against its customers by over-charges and robbery. In some countries, it's safer to walk. Wink

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@roger,

The discussion a week or so ago about "depletion" wandered off into Walmart's inventory. It would have taken a lot of effort to straighten that all out. I am an ex-CPA, by the way. I stepped back. Depletion is an issue we may revisit.
I am about to go to bed, but I leave you with the thrust of Jeffrey Leonard's argument, with details to follow later.
Over the past 60 or so years, the government has extended hand-outs to the energy industries, now totaling some $20Bn per year. He proposes eliminating all of them. All of them, whether to oil, coal, gas, nuclear, enthanol, and wind/solar.

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@realjohnboy,

realjohnboy wrote:

Over the past 60 or so years, the government has extended hand-outs to the energy industries, now totaling some $20Bn per year. He proposes eliminating all of them. All of them, whether to oil, coal, gas, nuclear, enthanol, and wind/solar.

I am not going to let that go by that easily, rjb. Please tell us how allowing a business to figure the cost of their investments into their inventories, merchandise, or assets is not a business expense and do not affect their profits, and that somehow allowing a business to do that is a handout? You seem to imply that the discovery and development of oil and gas fields and their reserves happen by some kind of blind luck or lottery, and that no investments are made to accomplish them?

I won't say there are no handouts to the energy idustry, but I think the ethanol industry is a better example, wherein companies are paid to produce a product that requires more energy to produce than it produces when used.

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okie says:

Quote:

Please tell us how allowing a business to figure the cost of their investments into their inventories, merchandise, or assets is not a business expense and do not affect their profits

Of course it is. That's how businesses figure out what to charge for their product--by how much it costst them to bring it to market plus what they want for their profit. They don't get a subsidy for doing that, that's just the way business works. So why subsidize the oil companies so that their already-huge profits--which indicate that their business ain't all that risky (unless you're as bad at it as George W. Bush was) get even huger.

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@MontereyJack,

But that's just what we're looking for. What is there in "depletion" that amounts to a subsidy? I've heard all kinds of implications that that is happening, but no specifics.

I do recognize this is somewhat of a digression, but a lot more on topic than a couple of people swapping insults for page after page.

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@roger,

If executives are paid high salaries because they are willing to take risks, then one of the risks they must face is the depletion of the resource they exploit. Why should the companies they take into the danger of bankruptcy or profit be compensated when something that is the product of the planet's formation runs out?

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@roger,

roger, It's the result of how these energy companies were able to get a tax break by buying it from their members of congress. It doesn't have to make any sense; it was bought and paid for.

California's legislature is bought and sold for by big business, and they will not share their appointment record with anybody. They claim that's an intrusion into their private lives. The majority of legislation being approved are from special interest groups that makes K Street look like pimps.

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@MontereyJack,

Please explain then how a legtitimate business expense is a "subsidy," MJ? For example, if a business pays$10 for a product, that they sell for $12.00, is the expense of $10 a "subsidy" or a legitimate "business expense"? In other words, is their profit $2.00 or is it $12.00. These are really very basic questions and simple ones as well. I hope you realize that if a business had to declare the entire $12.00 as profit, their tax liability would soon exceed any profits they had made. The heart of what I am talking about is the difference between gross profits and net profits. I am not a CPA, but this is really just basic common sense. I know that is rare in society today however, especially concerning oil companies that many people love to hate.

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@okie,

okie wrote:

Please explain then how a legtitimate business expense is a "subsidy," MJ? For example, if a business pays$10 for a product, that they sell for $12.00, is the expense of $10 a "subsidy" or a legitimate "business expense"? In other words, is their profit $2.00 or is it $12.00. These are really very basic questions and simple ones as well. I hope you realize that if a business had to declare the entire $12.00 as profit, their tax liability would soon exceed any profits they had made. The heart of what I am talking about is the difference between gross profits and net profits. I am not a CPA, but this is really just basic common sense. I know that is rare in society today however, especially concerning oil companies that many people love to hate.

I will repeat to you one more time: the depletion allowance allows companies to write off more than they originally spent developing the damn field!!! There is no other word for that then 'subsidy.'

Cycloptichorn

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@okie,

I will get to some >details from the Leonard article eventually.
Okie, I went back 50 pages on this thread. I was looking for the discussion we had on the "depletion allowance" in the energy field. No success. I recall explaining the concept of depreciation (allocating the cost of an asset - such as a truck - over the useful life of the item). I, or someone else, may have brought up depletion and then we got into valuing Walmart's inventory.
The concept fully complies with the big intention of accounting rules: Matching. That is, allocation the cost a long term investment against the annual revenue derived from the investment. The complication that comes into play with an energy source such as an oil well is the number of variables involved. What is the useful life - now and in the future? How much is the development cost - now and in the future? How much oil is there under the well? And on and on.
At no point, Okie, to summarize: I am confident that I never said, and I never meant to imply, that the depletion allowance is a subsidy. Someone else perhaps did, but it wasn't me.

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@realjohnboy,

Quote:

Okie, I went back 50 pages on this thread. I was looking for the discussion we had on the "depletion allowance" in the energy field. No success.

I think that conversation was in the 'obama '08' thread. And it was me who did, and I stand by that, for the reason I just posted above, and have several times.

Cycloptichorn

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Where is the US economy headed?

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