Hysterical Barack OBAMA! Video

Big thanks to my buddy, regular reader, and stock market bear Dave for sending this funny Barack Obama spoof along.

The actual video is only about 2 minutes, and then it transitions to a mini infomercial for the company that produced it...a pretty creative marketing vehicle in its own right.

Income Tax Facts That Will Drive You Nuts

Nice video put together by the folks at Reason TV about the clusterf*ck of a tax code we have here in the US.

The scariest stat to me is that the bottom 50% pays less than 3% of total taxes - especially scary because we live in a democracy, where all votes count equally.  

What if...There Had Been No Government Bailouts?

Oh what a wonderful economic world it may be right now, had the government not felt the compelling need to "do something."  Casey Research's Terry Coxon reviews the government's "helpful" actions over the past couple of years, and asks the question - what would have happened if they had done nothing?

Nothing
By Terry Coxon, Editor, The Casey Report

We don’t yet know how many trillions will be swallowed up by the government’s rapidly breeding herd of stimulus-bailout-help!help! measures. But additional bold steps are sure to come, some already in R&D and others to be invented on the fly to answer each new wave of bad news. Expect price tags suitable for proving how serious and determined the authors are.

The doubts that meet each new plan – does it really need to be that big... hasn’t something like that been tried before... is it smart to keep wrong-headed decision makers in high places... isn’t too much debt at the heart of the problem... if you don’t know what causes inflation, are you sure you know what causes babies – are all answered with the same rhetorical question: “We can’t just do nothing, can we?”

Yes, we can. But we won’t, because the decisions about our wealth and our freedom are being made by career politicians, for whom stepping aside is the only truly unacceptable plan. Nonetheless, even though the idea of government doing nothing in the face of credit crisis, bank insolvencies, and recession has been reduced to a hypothetical, such a policy deserves a little exploring, since it can tell us something about where all the big-dollar solutions coming out of Washington are likely to lead.


Background

It’s possible to train people to be crazy. If you’re acquainted with a psychotherapist (socially, of course), ask him to explain how it’s done. Training people to be crazy wasn’t what the U.S. government set out to do when it ended the dollar’s convertibility to gold in 1973. But it turned out to be one of the results.

Untethered from the gold standard, the Federal Reserve was free to create new dollars whenever it saw fit. But the policy it drifted into wasn’t steady inflation, day in and day out, it was rescue inflation. The Fed would step up the expansion of the money supply whenever it saw a risk of widespread defaults in credit markets. The unintended effect was to train both lenders and borrowers, by repeatedly rescuing them from damaging defaults, to appraise financial risk unrealistically and to regard what is in fact a source of danger as a manageable nuisance. It made the managers of financial institutions functionally crazy, and the longer rescue inflation continued, the worse they got. (When you read about investment bankers running a business with 30-to-1 leverage and tell yourself, “Those people must be crazy,” you’ve got it about right. But they weren’t born that way. They were trained.)

That’s how the credit crisis was nurtured. And here is what the government has done about it so far.

August 2007. The credit crisis is just going public. Commercial banks, investment banks, and other financial institutions are waking up to the reason they were getting such great returns on junk paper – it really is junk. To ease the shock, the Federal Reserve begins a vast and unprecedented program of swapping out Treasury securities from its own sizeable (nearly $1 trillion) investment portfolio in exchange for the embarrassing and worrisome securities that seem to be paralyzing the lending departments of the banks that own them. A novel approach, and not really inflationary, since no new cash is produced.

September 2008. Lehman Brothers informs the Federal Reserve that the novel approach, admirable though its inventiveness might be, isn’t working and drops dead in front of Ben Bernanke’s desk. The Fed abandons the hope of a non-inflationary remedy and begins a vast and unprecedented program of expanding the monetary base (buying Treasury securities and other IOUs in the open market with brand-new dollars).

October 2008. President Bush signs a vast ($700 billion) and unprecedented bailout bill. It has been sold to Congress as a measure to help banks survive and keep lending, but the details are vague in the extreme, leaving the secretary of the Treasury with the authority to use the money for almost anything, including, if he should find it advisable, “for carrying on an undertaking of great advantage; but nobody to know what it is.”

Other vast and unprecedented programs have followed, including tens of billions for any car company willing to drive (not fly) to the teller window, hundreds of billions to get messy home mortgages house-trained, and unspecified mega-billions for Timothy Geithner’s proposal to unburden banks of bad assets through a plan of great advantage but nobody to know what it is.

And today, 21 months after the doctors started scribbling prescriptions, most markets continue down, the economy is still shrinking, and worries are still growing.

Now roll the tape back to August 2007. What would have happened if the U.S. government had simply kept its long-standing commitments (in particular, protecting FDIC-insured deposits and preventing the money supply from shrinking) and otherwise had done nothing? No good-asset-for-bad-asset swaps, no wild expansion in the monetary base, no bailouts, no arranged marriages with taxpayer-financed dowries for failing institutions.

Nothing.

If that sounds extreme, perhaps you’ll find it a little more acceptable if I put it this way: what would have happened if George Bush, Ben Bernanke, Nancy Pelosi, Harry Reid, Barney Frank, and Barack Obama had done nothing?

It would have been spectacular, a mass die-off of the incautious. Bear Stearns, Morgan Stanley, and other practitioners of ultra leverage, including perhaps Merrill Lynch, would have folded. When you borrow to carry $30 of investments for each $1 of company capital, it only takes a 3.4% drop in the prices of your assets to put you under water. And when you’re getting that 30-to-1 leverage through overnight borrowing, even a whiff of doubt can make it impossible to roll over your financing from one day to the next. Either way, you’re out of business.

From there, the trouble would have fanned out. The firms just pronounced dead were counterparties to trillions of dollars in derivatives. The investors on the other side of all those deals (largely banks, insurance companies, and other brokers) would have been left holding the bag. Some of them would have failed, and all that survived would have been left weakened and living in fear.

Growing mortgage losses would have forced Fannie and Freddie (and also Countrywide Financial) into bankruptcy, which would have turned their trillions in outstanding bonds into junk debt, doing great injury to the banks, insurance companies, and other investors that held them. Citibank and Wachovia would have gone under. And with Fannie, Freddie, and Countrywide gone, the biggest sources of mortgage money would be unavailable, which would have turned the housing market from a corpse into a mutilated corpse. AIG, which had turned itself into a sink of follies by insuring other companies against losses on junk debt, would also have joined the departed – and the companies that had been depending on AIG credit insurance would have gotten sorted out between the failed and the merely damaged.

Bank of America, having been spared the irresistible invitations to acquire Countrywide and Merrill Lynch, might be in much better shape than it is today.

With a hundred-car pile-up in the financial sector, lending to businesses and consumers would have shriveled, and the rest of the economy would have slipped into a depression. No more General Motors. No more Chrysler. Ford maybe.

And those are just the big names. Tens of thousands of other companies would have gone out of business. Most others would have laid off workers. The unemployment rate would have moved deep into double digits. With so many companies cutting inventories to raise cash for survival, the wholesale price index would have gone off a cliff, and the consumer price index also would have slumped.

It’s an ugly picture, with pain and hardship for millions of people and grave worries for the rest. But before you start preparing thank-you notes for the good people in Washington who’ve acted so boldly, consider this:

If they had done nothing, the whole sorry business might be over by now. Without the promise of rescue and blow-softening, events would have moved quickly. The collapse of the overleveraged financial companies would have started soon after credit market jitters began in August 2007. (Leverage built on overnight borrowing invites swift justice.) The disaster in the financial sector might have been over by the end of that year or soon after. The year 2008 would have seen the wave of layoffs and bankruptcies in operating companies and the fall in wholesale and consumer prices.

A simple process would have brought the contraction to an end. With the prices of most things falling, the real value of the money in everyone’s pocket would be rising. That would continue until large segments of the population came to feel cash rich and started spending. Dollars appreciated in value, not dollars newly printed, would finance the recovery.

And it would be a thoroughly healthy recovery, because the bankruptcy proceedings that came before it would remove the billion-dollar bunglers of recent years from positions where they can make expensive mistakes. Decision making about the allocation of capital would fall to the survivors, who, by their survival, had proven their ability and readiness to decide wisely.

There is precedent for this. In the depression of 1920-1921, for example, wholesale prices fell by nearly one half, and most of that fall occurred in a period of just six months. It was a violent experience, with widespread bankruptcies, but it was over in a year and a half. It ran fast because the government did so little to try to stop it. Nancy Pelosi hadn’t been born yet.

So much for the hypothetical. Instead, with all the government efforts to make things right, we have:

• An economy that continues to contract;

• A continuing mystery as to which banks are solvent and which are not;

• Financial institutions still under the control of individuals who’ve proven they should be doing something else;

• Car companies on apparently permanent life-support at taxpayer expense;

• A retarded decline in housing prices that is extending, by years, uncertainty as to how severe mortgage losses are going to be;

• A flock of new government programs that will continue to soak up billions of dollars per year long after the recession is over;

• A vast and unprecedented (that again) increase in the basic money supply, which is jet fuel for price inflation;

• A vast and unprecedented increase in peacetime government borrowing, which, when the recovery begins, will trap the government in a choice between letting interest rates rise (and risk choking off the recovery) and continuing to inflate the money supply (and kiss runaway price inflation on the mouth).
  

Yes, it does seem cruel to do nothing when disaster is unfolding. But consider the likely consequences of the alternative.

Doing nothing might be appropriate for Washington at this point in time… but it is not what you should do as an investor. Making the trend your friend is the strategy that will get you through tough economic times like this and provide you double- and triple-digit returns.

The Casey Report focuses on emerging trends to profit from even in highly volatile markets – whether it’s shorting stocks squarely in the way of the accelerating economic avalanche or investing in commodities that stand to gain big in the coming months. Test it now risk-free with our 3-month, 100% money-back trial… click here to learn more.

Cartoon: Obama and the US Treasury

Source: Steve Sack, Minneapolis Star Tribune

Thanks Steve for allowing us to republish!

Stimulus Plans a Point of Contention at G-20 Summit

In this guest article, Stratfor's George Friedman details the underlying rifts heading into the G-20 summit - primarily between the "bailout/stimulus" brothers US and UK, versus France and Germany, which are not laying on stimulus packages of their own, but being export driven economies, are benefitting from the UK and US charity plans.  

The United States, Germany and Beyond
By George Friedman, Stratfor CEO

Three major meetings will take place in Europe over the next nine days: a meeting of the G-20, a NATO summit and a meeting of the European Union with U.S. President Barack Obama. The week will define the relationship between the United States and Europe and reveal some intra-European relationships. If not a defining moment, the week will certainly be a critical moment in dealing with economic, political and military questions. To be more precise, the meeting will be about U.S.-German relations. Not only is Germany the engine of continental Europe, its policies diverge the most sharply from those of the United States. In some ways, U.S.-German relations have been the core of the U.S.-European relationship, so this marathon of summits will focus on the United States and Germany.

Although the meetings deal with a range of issues — the economy and Afghanistan chief among them — the core question on the table will be the relationship between Europe and the United States following the departure of George W. Bush and the arrival of Barack Obama. This is not a trivial question. The European Union and the United States together account for more than half of global gross domestic product. How the two interact and cooperate is thus a matter of global significance. Of particular importance will be the U.S. relationship with Germany, since the German economy drives the Continental dynamic. This will be the first significant opportunity to measure the state of that relationship along the entire range of issues requiring cooperation.
Relations under Bush between the United States and the two major European countries, Germany and France, were unpleasant to say the least. There was tremendous enthusiasm throughout most of Europe surrounding Obama’s election. Obama ran a campaign partly based on the assertion that one of Bush’s greatest mistakes was his failure to align the United States more closely with its European allies, and he said he would change the dynamic of that relationship.

There is no question that Obama and the major European powers want to have a closer relationship. But there is a serious question about expectations. From the European point of view, the problem with Bush was that he did not consult them enough and demanded too much from them. They are looking forward to a relationship with Obama that contains more consultation and fewer demands. But while Obama wants more consultation with the Europeans, this does not mean he will demand less. In fact, one of his campaign themes was that with greater consultation with Europe, the Europeans would be prepared to provide more assistance to the United States. Europe and Obama loved each other, but for very different reasons. The Europeans thought that the United States under Obama would ask less, while Obama thought the Europeans would give more.

The G-20 and Divergent Economic Expectations

Begin with the G-20 summit of 20 of the world’s largest economies, which, along with the Americans and Europeans, include the Russians, Chinese and Japanese. The issue is, of course, the handling of the international financial crisis. In contrast to the G-20 meetings held in November 2008, the economic situation has clarified itself substantially — itself an improvement — and there are the first faint signs in the United States of what might be the beginning of recovery. There is still tremendous economic pain, but not nearly the panic seen in October.
There is, however, still discord. The most important disagreement is between the United States and United Kingdom on one side and France and Germany on the other. Both the United States and the United Kingdom have selected a strategy that calls for strong economic stimulus at home. The Anglo-American side wants Europe to match it (though the United Kingdom has begun tempering its demands). It fears that the heavily export-oriented Germans in particular will use the demand created by U.S. and British stimulus on their economies to surge German exports into these countries as demand rises. Germany and France would thus get the benefit of the stimulus without footing the bill, enjoying a free ride as the United States builds domestic debt. We must focus here on Germany and the United States because Germany is the center of gravity of the European economy just as the United States is of the Anglo-American bloc. Others are involved, but in the end this comes down to a U.S.-German showdown.

German Chancellor Angela Merkel argued that Germany could not afford the kind of stimulus promoted by the Anglo-Americans because German demographic problems are such that the proposed stimulus would impose long-term debt on a shrinking population, an untenable situation. Germany and France’s position makes perfect sense, whether it is viewed as Merkel has framed it, or more cynically, as Germany taking advantage of actions Obama already has taken. Either way, the fact remains that German and U.S. national interest are not at all the same. As Merkel put it in an interview with The New York Times, “International policy is, for all the friendship and commonality, always also about representing the interests of one’s own country.”

Paralleling this is the issue of how to deal with the Central European financial crisis. Toxic U.S. assets did not create this problem, internal European practices did. Western European banks took dominant positions in Eastern Europe in the past decade. They began to offer mortgages and other loans at low interest rates denominated in euros, Swiss francs and yen. This was an outstanding deal unless the Polish zloty and the Hungarian forint were to plunge in value, which they have over the past six months. Loan payments soared, massive defaults happened, and Italian, Austrian and Swedish banks were left holding the bag.

The United States viewed this as an internal EU matter, leaving it to European countries to save their own banks. Meanwhile, the Germans — who had somewhat less exposure than other countries — helped block a European bailout, arguing that the Central European countries should be dealt with through the International Monetary Fund (IMF), which was being configured to solve such problems in second-tier countries. From the German point of view, the IMF was simply going to be used for the purpose for which it was created. But Washington saw this as the Germans trying to secure U.S. (and Chinese and Japanese) money to deal with a European problem.

Add to this the complexity of Opel, a German carmaker owned by GM, which Germany wants the United States to bailout but which the United States wants nothing to do with, and the fundamental problem is clear: While both Germany and the United States have a common interest in moving past the crisis, Germany and the United States have very different approaches to the problem. Embedded in this is the hard fact that the United States is much larger than any other national economy, and it will be the U.S. recovery (when it comes) pulling the rest of the world — particularly the export-oriented economies — out of the ditch. Given that nothing can change this, the Germans see no reason to put themselves in a more difficult position than they are already in.

The Germans will not yield on the stimulus issue and Obama will not press, since this is not an issue that will resonate politically. But what could be perceived as a massive U.S. donation to the IMF would resonate politically in the United States. The American political system has become increasingly sensitive to the size of the debt being incurred by the Obama administration. A loan at this time to bail out other countries would not sit well, especially when critics would point out that some of the money will be going to bail out European banks in Central Europe.
European Fragmentation

Obama will need something in return from the Europeans, and the two-day NATO summit will be the place to get it. The Obama administration laid out the U.S. strategy in Afghanistan last Friday in preparation for this trip. Having given on the economic issue, Obama might hope that the Europeans would be forthcoming in increasing their commitment to Afghanistan by sending troops.

But there is almost no chance of Germany or France sending more troops, as public opinion in those countries is set against it and they have vastly limited military resources. During the U.S. presidential debates, Obama emphasized that he would be looking to the Europeans to increase aid in Afghanistan (the “good” war) while Iraq (the “bad” war) ends. The Germans will make some symbolic gestures — aid to Pakistan, reconstruction workers — but they will not be sending troops.

This will put Obama in a difficult position. If he donates money to the IMF, some of it earmarked for Europe, while the Europeans not only refuse to join the United States in a stimulus package but refuse to send troops to Afghanistan, the entire foundation of Obama’s foreign policy will start becoming a public issue. Obama argued that he would be more effective in building cooperation with European allies than Bush was or U.S. Sen. John McCain would have been. If he comes home empty-handed, which is likely, the status of that claim becomes uncertain.
Which brings us to the third meeting: the Obama-EU summit. We have been speaking of Germany as if it were Europe. In one sense, it is, as its economic weight drives the system. But politically and militarily, Europe is highly fragmented. Indeed, one of the consequences of German nationalism in dealing with Europe’s economy is that Europe’s economy is fragmented as well. Many smaller EU members, which had great expectations of what EU membership would mean, are disappointed and alienated from Germany and even the European Union itself largely due to the lack of German willingness to help them in their time of need.

More Fertile Ground for Obama

These are the waters Obama can go fishing in. Clearly, NATO is no longer functioning as it was a generation ago. Reality has shifted, and so have national interests. The international economic crisis has heightened — not reduced — nationalism as each nation looks out for itself. The weaker nations, particularly in Central Europe, have been left to fend for themselves.
The Central European countries have an additional concern: Russia. As Russia gets bolder, and as Germany remains unwilling to stand in Moscow’s way due to its energy dependence on Russia, countries on the EU periphery will be shopping for new relationships, particularly with the United States.

Obama’s strategy of coming closer to the Franco-German bloc appears to be ending in the same kind of train wreck in which Bush’s attempts ended. That is reasonable since these are not questions of atmospherics but of national interest on all sides. It therefore follows that the United States must consider new strategic relationships. The countries bordering Russia and Ukraine are certainly of interest to the United States, and share less interests with Germany and France than they thought they did. New bilateral relations — or even multilateral relations excluding some former partners like Germany — might be a topic to think about at the EU summit, even if it is too early to talk about it.

But let’s remember that Obama’s trip doesn’t end in Europe, it ends in Turkey. Turkey is a NATO member but has been effectively blocked from entry into the EU. It is doing relatively well in the economic crisis, and has a substantial military capability as well. The United States needs Turkey to extend its influence in Iraq to block Iranian ambitions, and north in the Caucasus to block Russian ambitions. Turkey is thus a prime candidate for an enhanced relationship with the United States. Excluded from Europe out of fears of Turkish immigration, economically able to stand on its own two feet, and able to use its military force in its own interest, it doesn’t take a contortionist to align U.S. and Turkish policies — they flow naturally.
However planned, Obama’s visit to Turkey will represent a warning to the Germans and others in its orbit that their relationship with the United States is based, as Merkel put it, on national interest, and that Germany’s interests and American interests are diverging somewhat. It also drives home that the United States has options in how to configure its alliance system, and that in many ways, Turkey is more important to the United States than Germany is.

Obama has made the case for multilateralism. Whatever that means, it does not have to mean continued alignment with all the traditional allies the United States had. There are potential new relationships and potential new arrangements. The inability of the Europeans to support key aspects of U.S. policy is understandable. But it will inevitably create a counter pressure on Obama to transfer the concept of multilateralism away from the post-World War II system of alliances toward a new system more appropriate to American national interests.
From our point of view, the talks in Europe are locked into place. A fine gloss will be put on the failure to collaborate. The talks in Turkey, on the other hand, have a very different sense about them.

Obama Administration Fires GM CEO Wagoner

Rick Wagoner is out as CEO of Government Motors, per an edict handed down from the Obama administration.

Not that Wagoner didn't deserve to be fired (he did - many times over)...but does it bother anyone else that the government is now firing private sector employees?

Pull Up a Chair to See Your Recovery Tax Dollars at Work

Come one, come all - taxpayers, pull up a front row seat, to see your tax dollars being squandered away, in real-time, at recovery.gov.

But first, a message from our sponsor:


Folks, I hate to piss on this roaring campfire of a good time, but the net multiplier on government spending is zero - it's been proven time and time again.

The government does not actually produce anything. This is a subtle, yet important point.

There are only two ways the government can raise money:

1. Taxing the private sector
2. Printing it

So while that nice pie chart on the homepage of recovery.gov may make you feel all warm and fuzzy inside - gee, we're putting $111B in science - that's great, much needed.

Maybe so - but remember that $111B was likely taken out of the hands of the private sector, so that it could be put in the hands of a bureaucratic organization to investigate the feasibility of installing solar powered windmills on the Moon.

Can there be real benefits from government spending? Of course. Would those benefits outweigh those the private sector could have produced on its own? I highly doubt it.

Which Energy Plays Will Prevail Under Obama

Which energy plays will win, and lose, under the Obama Administration? The Casey Research Energy Team breaks it down for us here, in this exclusive piece. Note: I subscribe to their regular publication, Casey Energy Opportunities.

How Obama Will Influence Energy Stocks

By Marin Katusa

Chief Strategist, Casey Research Energy Team

Casey Energy Opportunities

One might think the United States would be charging hard on energy security as well as border and other kinds of security in its Global War on Terror campaign. Not so. For example, America imports some 12 million barrels of oil per day, yet maintains a Strategic Petroleum Reserve (SPR) whose maximum is 727 million barrels (and its inventory is currently lower, 701 million barrels, because the government cut off shipments to it last year in an effort to modulate gasoline prices.) The math gets even more discouraging when you work in the fact that the SPR's daily drawdown capacity is only 4.4 million barrels – so America is completely unprepared for any worst-case scenarios, or even the bad-case ones.

It's not that the United States doesn't have the capacity for domestic energy production. Administration after administration, Republican as well as Democratic, is simply choosing to legislate it away. Designate the land above one of the biggest, cleanest coal deposits in the world a national monument, rope off huge swaths of offshore waters to drilling, threaten stringent new mining laws, derail hydroelectric projects, and America is handing foreign suppliers its own barrel for the country to crawl under.

Speaking of administrations... how about the new one? Will President Obama's promised green policies make a difference? As we laid out in the November 2008 edition of Casey Energy Opportunities, the short answer is no. In fact, we believe that if Obama pushes through the goals as he's outlined, the United States is actually headed for a more, not less, dangerous path. Green energy isn't enough to offset the pressure he plans for the “dirty” energies. A bull market will come for the traditional energies in the long run; the problem lies in the shorter term, in the instability of America's energy portfolio before the Obama administration realizes that nice girls don't wear that much paint.

With this in mind, let's look at each power generation technology from an investor's view.

Coal. However you slice it, the coal industry is in for a hard time under Obama. He proposes a tough 100% cap-and-trade system that will make coal plants uneconomical to run at almost any electricity or coal price around now. This goes for existing as well as new plants, and installing the latest-generation scrubbers will just be another route into the red for many companies. Did we mention that coal generates almost half of America's electricity?

As a result, we expect coal prices and coal utilities to trade well below their worth for the next few years. We're closing our position on a coal ETF in our portfolio, which we recommended in February 2007 and took a free ride on in June. But as time goes on, America will realize how overambitious Obama's targets are and come back to the tried and true. With the help of the coal industry's powerful coal lobby in Washington – not to mention all the voters the coal industry employs – coal will catch fire once more, and we'll reevaluate our position then.

Natural Gas. While a thermal-generation technology like coal, natural gas is less likely to feel pain under Obama because of its cleaner burning. And as natural gas is already one of the cheapest power technologies available, the industry would weather a cap-and-trade system better than coal. Natural gas is set to push to the forefront of the electric world.

So far, so good. The next factor changes things a bit for the savvy investor, however. Without Russia's heavy hand on the tap to deal with, prices should shadow market patterns in United States. Due to the country's large natural gas reserves and resources in both gas shale and coal bed methane, we predict natural gas prices will drop in the near term. Thus we're avoiding all but the best U.S. natural gas plays in the Casey Energy Opportunities portfolio.

Nuclear. Obama's stance on nuclear energy is decidedly neutral. He appears to recognize its benefits for domestic energy security as well as its carbon-reducing qualities. He's also aware it's still a touchy subject for many Americans, even with the Yucca Mountain waste disposal site moving forward. We add this up to mean that nuclear reactors currently in planning stages are likely to go ahead unimpeded by federal or state meddling. This is good news for our uranium picks.

There's another bullish influence coming for uranium: the sunset of America's current Highly Enriched Uranium (HEU) agreement with Russia in 2013. At best, Moscow will demand to renegotiate the bargain-basement price it's now obligated to offer under terms of the agreement. More realistically, it will threaten to shop its converted weapons-grade uranium elsewhere – another barrel over the land of the free – and Russia actually has several incentives to do so. Sooner or later, the United States will return to sources within its own borders, then from Canada.

Wind. Wind energy has much to gain from Obama's plan, which, as it stands, has some $15 billion slotted for clean energy initiatives. His target of “25% by 2025” would require roughly double or even triple growth for the wind industry. Obviously this growth is achievable only through government subsidies, which may or may not be sustainable. Only a few areas of the United States, such as around the Great Lakes and offshore in territorial waters, enjoy the steady stiff breeze that wind farms require to be viable.

Offshore projects raise another hurdle: transmission lines. For fun, let's run some numbers for President Obama. For wind power to supply 20% of America's power by 2030, the country would need to build an estimated 12,000 miles of 765 kV transmission lines. At a cost to generate power of US$0.06 – about the same as geothermal – the transmission lines would cost $2.6 million per mile (in today's money), or $31 billion total. That figure would account for 21% of the total budget for clean energy alternatives, or to put it another way, two years' funding for NASA.

A company with projects bearing very good wind reserves near an existing transmission line is the only kind of investment we'd consider here. For now, however... like T. Boone Pickens, who recently announced he's putting his giant Texas wind-farm project on hold because of the credit crunch and falling energy prices – we, too, are steering clear of wind energy.

Solar. Sun-powered electricity is a great long-term energy provider. Despite advances in the technology, however, it continues to be one of the highest-cost producers; and there will always be the issue of what to do when the sun doesn't shine (and not just on cloudy days – there's every night). And while the Mojave Desert isn't as remote as China's Gobi, the incoming administration still needs to consider cost of infrastructure when promoting solar farms. That said, we still believe that our investment in two hand-picked solar stocks will return good profits in the next few years.

Geothermal. Many projects generating electricity from hot water would run into trouble if oil were to go below $50 per barrel. True still, but geothermal continues to appeal nonetheless. First, oil is unlikely to stay this low for long; and more fundamentally, geothermal's load factor – as high as 95% -- pushes it far to the head of the renewables class and comparable to natural gas and nuclear.

Its limitation is geographical. At the very best, only 10% of the United States could be supplied with geothermal power, according to the Department of Energy, and we find that figure optimistic. Geothermal currently represents 0.35% of America's power generation.

We're willing to invest in geothermal companies because of the robust economics and the fact that they're likely to do well under the cap-and-trade system that appears inevitable. We want to pick those that have not only good resources but also customers, so two top-quality geothermal companies are currently in the Casey Energy Opportunities portfolio.

Hydroelectricity. On the scale of energy generation technologies, hydroelectricity tends to rate as reliable, and generally cheap and environmentally benign. Like Europe, however, the United States has little hydroelectricity left to exploit, and even the newer run-of-river technology is unlikely to bump its contribution up much from hydropower's current 10%.

Biofuels. Unlike the Casey Research Energy Team, Obama is fond of this stuff. Biofuels are both heavily subsidized and currently high-cost alternatives to reducing carbon – second generation (from non-food organic material) and third generation (using algae) included. However, the White House is soon to hold a former senator from Illinois, one of the largest ethanol producers in the United States, so biofuels are likely to hang around in some form or another. We'll keep our eye on research, as well as industry developments in the near future.

***

As Casey Research Managing Director David Galland likes to say, “There has never been an economy so heavily politicized as the current one.” Therefore, anticipating how a market sector will be faring is not enough anymore… you also need to be able to foresee what Washington and/or the Fed is going to do to influence that industry.

To that end, Casey Research offers you a brand-new FREE special report, Obama’s Newer Deal, a short but comprehensive guide on the policies and stances you can expect from the new administration… and how it affects you as an investor. Plus, test Casey Energy Opportunities risk-free with this special offer… clicking here.

Fred Thompson on the Absurdity of our Economic Recovery Plans

Great job by Fred. My favorite line: "We could give everyone in America a shovel. Half of them can dig holes, and the other half can fill them in. Then everyone would get a check, and that would fix our unemployment problem."

Stratfor: Obama's Two Unavoidable Crises

Thanks to our friends at Stratfor, for granting us the right to republish this fine analysis of the two major challenges President Obama faces on the global stage.

Obama Enters The Great Game

By George Friedman

U.S. President-elect Barack Obama will be sworn in on Tuesday as president of the United States. Candidate Obama said much about what he would do as president; now we will see what President Obama actually does. The most important issue Obama will face will be the economy, something he did not anticipate through most of his campaign. The first hundred days of his presidency thus will revolve around getting a stimulus package passed. But Obama also is now in the great game of global competition — and in that game, presidents rarely get to set the agenda.

The major challenge he faces is not Gaza; the Israeli-Palestinian dispute is not one any U.S. president intervenes in unless he wants to experience pain. As we have explained, that is an intractable conflict to which there is no real solution. Certainly, Obama will fight being drawn into mediating the Israeli-Palestinian conflict during his first hundred days in office. He undoubtedly will send the obligatory Middle East envoy, who will spend time with all the parties, make suitable speeches and extract meaningless concessions from all sides. This envoy will establish some sort of process to which everyone will cynically commit, knowing it will go nowhere. Such a mission is not involvement — it is the alternative to involvement, and the reason presidents appoint Middle East envoys. Obama can avoid the Gaza crisis, and he will do so.

Obama’s Two Unavoidable Crises

The two crises that cannot be avoided are Afghanistan and Russia. First, the situation in Afghanistan is tenuous for a number of reasons, and it is not a crisis that Obama can avoid decisions on. Obama has said publicly that he will decrease his commitments in Iraq and increase them in Afghanistan. He thus will have more troops fighting in Afghanistan. The second crisis emerged from a decision by Russia to cut off natural gas to Ukraine, and the resulting decline in natural gas deliveries to Europe. This one obviously does not affect the United States directly, but even after flows are restored, it affects the Europeans greatly. Obama therefo re comes into office with three interlocking issues: Afghanistan, Russia and Europe. In one sense, this is a single issue — and it is not one that will wait.

Obama clearly intends to follow Gen. David Petraeus’ lead in Afghanistan. The intention is to increase the number of troops in Afghanistan, thereby intensifying pressure on the Taliban and opening the door for negotiations with the militant group or one of its factions. Ultimately, this would see the inclusion of the Taliban or Taliban elements in a coalition government. Petraeus pursued this strategy in Iraq with Sunni insurgents, and it is the likely strategy in Afghanistan.

But the situation in Afghanistan has been complicated by the situation in Pakistan. Roughly three-quarters of U.S. and NATO supplies bound for Afghanistan are delivered to the Pakistani port of Karachi and trucked over the border to Afghanistan. Most fuel used by Western forces in Afghanistan is refined in Pakistan and delivered via the same route. There are two crossing points, one near Afghanistan’s Kandahar province at Chaman, Pakistan, and the other through the Khyber Pass. The Taliban have attacked Western supply depots and convoys, and Pakistan itself closed the routes for several days, citing government operations a gainst radical Islamist forces.

Meanwhile, the situation in Pakistan has been complicated by tensions with India. The Indians have said that the individuals who carried out the Nov. 26 Mumbai attack were Pakistanis supported by elements in the Pakistani government. After Mumbai, India made demands of the Pakistanis. While the situation appears to have calmed, the future of Indo-Pakistani relations remains far from clear; anything from a change of policy in New Delhi to new terrorist attacks could see the situation escalate. The Pakistanis have made it clear that a heightened threat from India requires them to shift troops away from the Afghan border and toward the east; a small number of troops already has been shifted.

Apart from the direct impact this kind of Pakistani troop withdrawal would have on cross-border operations by the Taliban, such a move also would dramatically increase the vulnerability of NATO supply lines through Pakistan. Some supplies could be shipped in by aircraft, but the vast bulk of supplies — petroleum, ammunition, etc. — must come in via surface transit, either by truck, rail or ship. Western operations in Afghanistan simply cannot be supplied from the air alone. A cutoff of the supply lines across Pakistan would thus leave U.S. troops in Afghanistan in crisis. Because Washington can’t predict or control the future actions of Pakistan, of India or of terrorists, the United States must find an alternative to the routes through Pakistan.

When we look at a map, the two routes through Pakistan from Karachi are clearly the most logical to use. If those were closed — or even meaningfully degraded — the only other viable routes would be through the former Soviet Union.

· One route, along which a light load of fuel is currently transported, crosses the Caspian Sea. Fuel refined in Armenia is ferried across the Caspian to Turkmenistan (where a small amount of fuel is also refined), then shipped across Turkmenistan directly to Afghanistan and through a small spit of land in Uzbekistan. This route could be expanded to reach either the Black Sea through Georgia or the Mediterranean through Georgia and Turkey (though the additional use of Turkey would require a rail gauge switch). It is also not clear that transports native to the Caspian have sufficient capacity for this.

· Another route sidesteps the issues of both transport across the Caspian and the sensitivity of Georgia by crossing Russian territory above the Caspian. Kazakhstan, Uzbekistan (and likely at least a small corner of Turkmenistan) would connect the route to Afghanistan. There are options of connecting to the Black Sea or transiting to Europe through either Ukraine or Belarus.

· Iran could provide a potential alternative, but relations between Tehran and Washington would have to improve dramatically before such discussions could even begin — and time is short.

Many of the details still need to be worked out. But they are largely variations on the two main themes of either crossing the Caspian or transiting Russian territory above it.

Though the first route is already partially established for fuel, it is not clear how much additional capacity exists. To complicate matters further, Turkmen acquiescence is unlikely without Russian authorization, and Armenia remains strongly loyal to Moscow as well. While the current Georgian government might leap at the chance, the issue is obviously an extremely sensitive one for Moscow. (And with Russian forces positioned in Azerbaijan and the Georgian breakaway regions of Abkhazia and South Ossetia, Moscow has troops looming over both sides of the vulnerable route across Georgia.) The second option would require crossing Russian territory itself, with a number of options — from connecting to the Black Sea to transiting either Ukraine or Belarus to Europe, or connecting to the Baltic states.

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Both routes involve countries of importance to Russia where Moscow has influence, regardless of whether those countries are friendly to it. This would give Russia ample opportunity to scuttle any such supply line at multiple points for reasons wholly unrelated to Afghanistan.

If the West were to opt for the first route, the Russians almost certainly would pressure Azerbaijan and Turkmenistan not to cooperate, and Turkey would find itself in a position it doesn’t want to be in — namely, caught between the United States and Russia. The diplomatic complexities of developing these routes not only involve the individual countries included, they also inevitably lead to the question of U.S.-Russian relations.

Even without crossing Russia, both of these two main options require Russian cooperation. The United States must develop the option of an alternative supply route to Pakistan, and in doing so, it must define its relationship with Russia. Seeking to work without Russian approval of a route crossing its “near abroad” will represent a challenge to Russia. But getting Russian approval will require a U.S. accommodation with the country.

The Russian Natural Gas Connection

One of Obama’s core arguments against the Bush administration was that it acted unilaterally rather than with allies. Specifically, Obama meant that the Bush administration alienated the Europeans, therefore failing to build a sustainable coalition for the war. By this logic, it follows that one of Obama’s first steps should be to reach out to Europe to help influence or pressure the Russians, given that NATO has troops in Afghanistan and Obama has said he intends to ask the Europeans for more help there.

The problem with this is that the Europeans are passing through a serious crisis with Russia, and that Germany in particular is involved in trying to manage that crisis. This problem relates to natural gas. Ukraine is dependent on Russia for about two-thirds of the natural gas it uses. The Russians traditionally have provided natural gas at a deep discount to former Soviet republics, primarily those countries Russia sees as allies, such as Belarus or Armenia. Ukraine had received discounted natural gas, too, until the 2004 Orange Revolution, when a pro-Western government came to power in Kiev. At that point, the Russians began demanding full payment. Given the subsequent rises in global energy prices, that left Ukraine in a terrible situation — which of course is exactly where Moscow wanted it.

The Russians cut off natural gas to Ukraine for a short period in January 2006, and for three weeks in 2009. Apart from leaving Ukraine desperate, the cutoff immediately affected the rest of Europe, because the natural gas that goes to Europe flows through Ukraine. This put the rest of Europe in a dangerous position, particularly in the face of bitterly cold weather in 2008-2009.

The Russians achieved several goals with this. First, they pressured Ukraine directly. Second, they forced many European states to deal with Moscow directly rather than through the European Union. Third, they created a situation in which European countries had to choose between supporting Ukraine and heating their own homes. And last, they drew Berlin in particular — since Germany is the most dependent of the major European states on Russian natural gas — into the position of working with the Russians to get Ukraine to agree to their terms. (Russian Prime Minister Vladimir Putin visited Germany last week to discuss this directly with German Chancellor Angela Merkel.)

The Germans already have made clear their opposition to expanding NATO to Ukraine and Georgia. Given their dependency on the Russians, the Germans are not going to be supporting the United States if Washington decides to challenge Russia over the supply route issue. In fact, the Germans — and many of the Europeans — are in no position to challenge Russia on anything, least of all on Afghanistan. Overall, the Europeans see themselves as having limited interests in the Afghan war, and many already are planning to reduce or withdraw troops for budgetary reasons.

It is therefore very difficult to see Obama recruiting the Europeans in any useful manner for a confrontation with Russia over access for American supplies to Afghanistan. Yet this is an issue he will have to address immediately.

The Price of Russian Cooperation

The Russians are prepared to help the Americans, however — and it is clear what they will want in return.

At minimum, Moscow will want a declaration that Washington will not press for the expansion of NATO to Georgia or Ukraine, or for the deployment of military forces in non-NATO states on the Russian periphery — specifically, Ukraine and Georgia. At this point, such a declaration would be symbolic, since Germany and other European countries would block expansion anyway.

The Russians might also demand some sort of guarantee that NATO and the United States not place any large military formations or build any major military facilities in the former Soviet republics (now NATO member states) of Estonia, Latvia and Lithuania. (A small rotating squadron of NATO fighters already patrols the skies over the Baltic states.) Given that there were intense anti-government riots in Latvia and Lithuania last week, the stability of these countries is in question. The Russians would certainly want to topple the pro-Western Baltic governments. And anything approaching a formal agreement between Russia and the United States on the matter could quickly destabilize the Baltics, in addition to very much weakening the NATO alliance.

Another demand the Russians probably will make — because they have in the past — is that the United States guarantee eventual withdrawal from any bases in Central Asia in return for Russian support for using those bases for the current Afghan campaign. (At present, the United States runs air logistics operations out of Manas Air Base in Kyrgyzstan.) The Russians do not want to see Central Asia become a U.S. sphere of influence as the result of an American military presence.

Other demands might relate to the proposed U.S. ballistic missile defense installations in the Czech Republic and Poland.

We expect the Russians to make variations on all these demands in exchange for cooperation in creating a supply line to Afghanistan. Simply put, the Russians will demand that the United States acknowledge a Russian sphere of influence in the former Soviet Union. The Americans will not want to concede this — or at least will want to make it implicit rather than explicit. But the Russians will want this explicit, because an explicit guarantee will create a crisis of confidence over U.S. guarantees in the countries that emerged from the Soviet Union, serving as a lever to draw these countries into the Russian orbit. U.S. acquiescence on the point potentially would have ripple effects in the rest of Europe, too.

Therefore, regardless of the global financial crisis, Obama has an immediate problem on his hands in Afghanistan. He has troops fighting there, and they must be supplied. The Pakistani supply line is no longer a sure thing. The only other options either directly challenge Russia (and ineffectively at that) or require Russian help. Russia’s price will be high, particularly because Washington’s European allies will not back a challenge to Russia in Georgia, and all options require Russian cooperation anyway. Obama’s plan to recruit the Europeans on behalf of American initiatives won’t work in this case. Obama does not want to start his administration with making a massive concession to Russia, but he cannot afford to leave U.S. forces in Afghanistan without supplies. He can hope that nothing happens in Pakistan, but that is up to the Taliban and other Islamist groups more than anyone else — and betting on their goodwill is not a good idea.

Whatever Obama is planning to do, he will have to deal with this problem fast, before Afghanistan becomes a crisis. And there are no good solutions. But unlike with the Israelis and Palestinians, Obama can’t solve this by sending a special envoy who appears to be doing something. He will have to make a very tough decision. Between the economy and this crisis, we will find out what kind of president Obama is.

And we will find out very soon.

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Editor's note: You might also like: Obama's Newer Deal, by Casey Research's David Galland