Dear Reader,

Al Gore has been taking some heat recently for his dual role as advocate and investor. Critics say Mr. Gore is poised to become the world’s first “carbon billionaire,” profiteering from government policies he supports that would direct billions of dollars to the business ventures he has invested in.

Gore says that he is simply putting his money where his mouth is. But is that really the case?

Here’s an excerpt from The New York Times about one of Gore’s recent deals.

Former Vice President Al Gore thought he had spotted a winner last year when a small California firm sought financing for an energy-saving technology from the venture capital firm where Mr. Gore is a partner.

The company, Silver Spring Networks, produces hardware and software to make the electricity grid more efficient. It came to Mr. Gore’s firm, Kleiner Perkins Caufield & Byers, one of Silicon Valley’s top venture capital providers, looking for $75 million to expand its partnerships with utilities seeking to install millions of so-called smart meters in homes and businesses.

Mr. Gore and his partners decided to back the company, and in gratitude Silver Spring retained him and John Doerr, another Kleiner Perkins partner, as unpaid corporate advisers.

The deal appeared to pay off in a big way last week, when the Energy Department announced $3.4 billion in smart grid grants. Of the total, more than $560 million went to utilities with which Silver Spring has contracts. Kleiner Perkins and its partners, including Mr. Gore, could recoup their investment many times over in coming years.

Silver Spring Networks is a foot soldier in the global green energy revolution Mr. Gore hopes to lead. Few people have been as vocal about the urgency of global warming and the need to reinvent the way the world produces and consumes energy. And few have put as much money behind their advocacy as Mr. Gore and are as well positioned to profit from this green transformation, if and when it comes.

I have no problem with Gore getting involved with business and starting companies. Indeed, business and entrepreneurship is the most noble of paths. But Gore is no businessman or entrepreneur, he (like Ken Lay and Enron) is a rent-seeker. None of his ventures would be profitable on their own without government assistance (either in the form of direct subsidies or laws against competing firms).

Rent seekers use political means – the government’s authority to initiate violent aggression and fraud – to contrive rents by preventing others from competing with them or by forcibly taking the wealth of others. Unlike profit-seeking, rent-seeking does not create wealth, it just transfers it from one person or business to another. When Gore wins rents by using political means, he is better off, but others, including potential competitors and consumers, are worse off.

To quote Sanford Ikeda’s “Rent-Seeking: A Primer”:

The latter [consumers] will pay higher prices, get poorer quality, or have fewer choices because political means are quite effective in discouraging rival entrepreneurs. The results of rent-seeking also stifle the competitive discovery process, so that consumers are less likely to become aware of more efficient methods or better providers.

Thus the resources that competitive rent-seekers spend in their quest for these politically created rents are indeed wasted because they are used to produce an outcome in which nothing of value is created. Indeed, rent-seeking of this kind destroys wealth.

So Gore really isn’t just putting his money where his mouth is. He’s putting his money, your money, and my money where his mouth is… and destroying wealth in the process.

Gold Jumps to $1,085!

By Bud Conrad

Gold is up on the announcement that India bought half of the proposed IMF sale of 403 metric tons. China had appeared ready to unload some of its $2 trillion of foreign reserves for gold, and India came out of nowhere to scoop up 200 metric tons at about $1,042/oz.

That then drove the market higher yesterday to $1,085 per ounce. At a profit of $40/oz, so far India has made $257 million in a couple of days. (32,150 oz/metric ton  X  200 metric tons X $40)

This is good news for India and better news for Casey Research subscribers who have been holding gold and gold stocks for years.

What do we expect? At the beginning of the year, I predicted $1,150 per ounce as the end-of-year level and was more bullish than some of the other prognosticators. I didn’t really see the amount of selloff we saw in the middle of the year. The $1,150 assessment seems conservative considering the recent spike and the growing mistrust of the U.S. dollar. The price is up from $930 in July to $1,085, which is a $135 gain in four months or about $39/month. With two more months to go, adding $78 to today’s $1,085 gets us to $1,163.

With all that is going on from Afghanistan and Iran, to new government spending and continuing dollar demise, I think that $1,200 is as likely as my original call.

The long-term implications of government deficits as long as the eye can see indicate that gold will be about the safest investment you can make.

P.S. My latest article in The Casey Report displays charts of the historical price of gold compared to the dollar, and the dollar to the budget deficit. They track closely until this year where the budget deficit becomes more extreme. The higher budget deficit suggests a weaker dollar, and the weaker dollar suggest higher gold. The story of deficit financing leading to the collapse of the German mark in 1923 is also in the article. For a risk-free trial of The Casey Report, please click here. You won’t be disappointed.

Unique Gold Opportunity

If you’re one of those gold bugs who fear that the government might snap and confiscate all gold bullion at some point, you can rest more easily now.

We’ve been working on a special solution to your predicament for the last several months. For that purpose, we’ve partnered with the folks at ASI/First Collectors Guild, and are now proud to present… the Heirloom Collection, timelessly elegant 24k necklaces and bracelets in four different styles.

You may wonder why we would go into “the jewelry business.” Here’s why: these pieces combine the best of both worlds – aside from making a beautiful holiday gift for your significant other, they also have the safe-keeping and wealth-building properties of bullion gold.

• Gold jewelry is one of the few items that has been excluded from past gold confiscations. Plus, you won’t have problems transporting it across a border.
  
  
• Because it’s bullion jewelry, it has a unique tax treatment, and sales do not have to be reported to the IRS.
  
  
• Like gold bullion coins, you can buy these 24k, pure-gold necklaces and bracelets in increments of one ounce – so you decide how valuable you want your piece of jewelry to be.
  
  
• The markup is less than what you usually pay for numismatic gold coins (which, by the way, are often only 21.7 karats, not 24 like the Heirloom items).
  

The prices of the necklaces and bracelets vary depending on gold’s spot price, and they’re custom-made for you, so you won’t find any fixed prices or “Click here to buy” buttons on the website. For pricing and orders, call First Collectors Guild at 1-866-885-6971 and talk to them.

This unique offer is available immediately, but quantity is limited, since the items are made to order. So if you’re looking to give a special gift “that keeps giving” for the holidays and want to guarantee that it gets to you before Christmas, you need to call before the end of November – the sooner, the better.

Here’s the link to the website again, in case you missed it above.

Own Berkshire Hathaway for Under $70

Yesterday, Warren Buffett’s Berkshire Hathaway announced plans for a 50-for-1 stock split of its Class B shares to facilitate the company’s $26 billion cash-and-stock purchase of the remaining 77% of rail operator Burlington Northern Santa Fe Corp. it currently doesn’t own. Given that the B shares are currently trading just north of $3,400, the post-split price would be about $68.

Here’s more of the story from The Wall Street Journal:

Such a price change would make a big difference for retail investors who want in on Berkshire shares. Even the Class B shares, which were created in 1996 and are structured to cost about 1/30th the price of Class A shares, are out of reach for most.

"In most situations, investment bankers will say it's important to find a stock more people can buy a hundred shares of," said Nicholas Colas, chief market strategist for BNY ConvergEx Group. "A lower priced stock just allows more investors to consider the asset."

Given Mr. Buffett's track record and public stature, many investors want exposure to his business and stock-picking acumen. The ability to attend his annual investor meeting in Omaha, Neb., which has taken on cult status, provides no small allure as well.

The inclusion of Berkshire on a major stock index would broaden its investor base even further.

Standard & Poor's has eight major criteria to be included in its bellwether index S&P 500 Index, which has about $1 trillion directly tied to it. Berkshire has met some of the criteria for years, including market capitalization rules and a mandate all companies must be U.S. based.

One criteria has been an issue, however, with S&P guidelines stating that any constituent must trade a minimum of 250,000 shares in each of the six months leading up to the evaluation date. Berkshire's class B shares have recently pushed to around 30,000 shares a day after being much lower last year. So, while they now surpass the 250,000-share full-month threshold, the stock split will have them easily meeting the benchmark.

One issue that may leave Berkshire on the outside is its reliance on Mr. Buffett. Index experts say the S&P 500 committee wants companies that are unlikely to face the kind of upheaval that could be created when someone of Mr. Buffett's stature leaves.

"It's a question of leadership. If Steve Jobs is critical to Apple, Warren is 10 times more critical to Berkshire Hathaway," said Mr. Colas, noting Mr. Buffett's advanced age.

A spokesman for S&P declined to comment about Berkshire's potential inclusion in its indexes, noting any statements from S&P could be market moving.

For the record, I’m a little leery about investing in Berkshire Hathaway these days. If the data I found from Barron’s is accurate, the stock, at more than 50 times earnings, seems overvalued. Plus, the sage of Omaha has seemed a little off his game the past couple years, and I don’t particularly like the collectivist rhetoric that spews from his mouth from time to time.

Nevertheless, a more successful value investor there has never been, and picking up the shares below $70 is really tempting. I’ll let you know what I decide.

The Worst Bill Ever?

The opinion section of The Wall Street Journal ran a story titled “The Worst Bill Ever” about ObamaCare. It truly is a must-read. Below is a snippet followed by a link to the full article.

… In a rational political world, this 1,990-page runaway train would have been derailed months ago. With spending and debt already at record peacetime levels, the bill creates a new and probably unrepealable middle-class entitlement that is designed to expand over time. Taxes will need to rise precipitously, even as ObamaCare so dramatically expands government control of health care that eventually all medicine will be rationed via politics…

If you want to read the entire article, please click here.

Stimulus Watch

Two days ago in the article on government “job creation,” I mentioned the Obama administration’s claim that the government’s fiscal stimulus program has helped create or save almost 650,000 jobs so far. Well, as you might have expected, a new story out from the AP proves that figure is highly suspect.

To quote the article:

President Barack Obama's economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council, an impressive success story for the stimulus plan. Trouble is, only 508 people work there.

The Georgia nonprofit's inflated job count is among persisting errors in the government's latest effort to measure the effect of the $787 billion stimulus plan despite White House promises last week that the new data would undergo an "extensive review" to root out errors discovered in an earlier report.

About two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren't saved at all, according to a review of the latest data by The Associated Press. Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren't saved.

That type of accounting was found in an earlier AP review of stimulus jobs, which the Obama administration said was misleading because most of the government's job-counting errors were being fixed in the new data.

That’s just fantastic. If you want to read the whole article, please click here.

And that, dear reader, is that for today. David will be back with you tomorrow… but I’ll see you soon. In the meantime, thank you for reading and for subscribing to a Casey Research service.

Chris Wood
Casey Research, LLC