Dumb Government

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Published on Wednesday, 26 September 2012 17:00

Written by Andrew Snyder, Editorial Director, Inside Investing Daily

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Governments meddle. It's their job. Play it right, and you could make serious cash.

Over eggs and oatmeal this morning, I read about India's recent spate of major blackouts. By the time my bowl was clean, I came to a realization... dumb governments aren't all that bad.

Oh sure, they waste infinite amounts of money. And there's no doubt they slow the pace of progress. And we can't forget their raw instinct for war.

But without dumb governments (pardon the redundancy), investing would be oh-so boring... and far less productive for those of us who actually bother to track the meanderings of our political leaders.

Here's what I mean. These couple of lines from a Reuters article sent my spongy cortex into overdrive:

The [Indian] cabinet approved a plan on Monday to bail out cash-strapped power distributors saddled with more than $35 billion in debt, but which analysts said offered little to reform a sector whose dysfunction has exacerbated a growth-sapping energy crisis.

In other words, if the dumb government would step aside, the industry would be forced to fix itself or fall flat on its face. But because no politico wants to be in office when the grid fails, they paper over the problems with cash... and let the next guy figure it out.

The funny thing is the same paragraph could be ripped from an American rag. Our government loves to throw money at anything that squeaks.

In fact... look what I found. Here's the first paragraph of a Washington Examiner article printed Monday:

Eliminating the surcharge that allows electric companies to charge customers for power during an outage could make it harder for the utilities to prevent future outages, company officials told the Maryland Public Service Commission, or PSC, on Monday.

In other words, the local power company is working to persuade the dumb government to keep charging customers even when they are too inept to provide the juice they promised. Any economist will tell you the lack of revenues during a blackout should provide a natural incentive for the company to prevent blackouts.

Fortunately, the government is there to squash any sense of a natural economy. Why fix the problem, it says, when we can paper it over with other people's money?

But wait, dear reader, our story gets better (the emphasis is mine):

The surcharge is intended to help utilities earn the revenue they are legally entitled to in months when customers use less electricity than expected, like if a summer month is cooler than usual. This usually amounts to a small sum on an individual customer's bill -- sometimes less than a dollar -- though it means a difference of millions of dollars for utilities.

Hmmm... maybe our government is not all that dumb. After all, it's found a way to quietly steal a few bucks from all of us so it can stuff millions of bucks into the pockets of its political allies.

The battle in Washington this week stems from a late-June storm that left thousands of folks near the nation's capital without electricity for more than a week. Without power, these folks lost hundreds of dollars' worth of groceries. They were forced to stay in hotels. And many businesses lost a week's worth of revenues.

Will the power company reimburse them? Oh no... maybe in a free market, but not in this rigged economy. Instead, the customers are forced to pay up. The power companies need that revenue, you know.

What's next? Will I have to write a check to BP when my truck is in the garage? Big Oil depends on my cash to keep the wells flowing, right? Let's not give these dopes any ideas.

Again, if the government stepped out of the way, the power industry would be forced to fend for itself. Most of today's providers would be out of business in a month.

That's why investing today is so much fun and so exciting... we never know what the dumb government will do next. We're always guessing -- and guessing leads to volatility and great investing opportunities.

That's the idea that takes us to our final destination. England has long been the home of dumb governments. It's their ignorance that built America... and is now about to hand Unconventional Wealth subscribers some tidy gains.

We all know governments hate coal. It's too dirty, they tell us. It makes the planet sweat.

So what's the alternative? Trees, of course.

While it doesn't make sense to you and me, it makes perfect sense to a dumb government. Think about it. Sure, burning a tree creates a huge plume of dirty smoke littered with carbon dioxide. But all we have to do is plant more trees, and they will suck all that icky stuff right out of the air. Duh...

Nevermind the fact we'll burn trees far faster than Ma Nature can grow them... or the fact the process will be terribly expensive. What matters here, of course, is the political ramifications.

Burning "biomass" is a renewable form of energy. It sounds like an enlightened idea to the vast majority of voters who never bother to stop and think about anything other than a bad call by a wannabe NFL referee.

And let's not overlook the economic benefits. Think of all of those jobs that will be created.

First, we pay a company to tear down the coal plant. Then we pay somebody else to build a wood-fired boiler. Then we convert the railroad's coal cars to haul timber. Then we pay the foresters for their wood (while handing the coal miners' unemployment checks).

And finally, the electric company boosts the price of the electricity it's sending down the line -- being green ain't cheap, you know.

You don't have to be an econo-whiz to see the opportunities or the chances for Mr. Market to screw things up.

When the British government announced massive incentives for power producers to switch to burning wood, shares of the company that owns the country's largest coal-fired plant plunged by over 25%.

Then the corporate executives spoke up... and said they were secretly testing wood-burning units.

"It was a really incredibly difficult and delicate situation," said the company's financial director, Tony Quinlan. "We were not in a position whereby we could give the market some information to say that these unit trials were taking place, because it would breach the government confidentiality."

Government confidentiality? Ruh-roh... I don't like the sound of that. We know how many bullets split open the head of Osama... but we aren't supposed to know who gets paid to burn trees?

Oh, well... history says we must deal with these sorts of things.

The free markets may have been killed by the hands of dumb governments, but there is no doubt it has created quite the opportunity for savvy investors. For us, all of this meddling is good.

For the folks willing to pay attention, market manipulation leads to profits.

As I said above, Unconventional Wealth subscribers have taken full advantage of the trend. We recently added a timber play to our portfolio (I argue it's a better asset to own than gold). And guess what... we're up by double digits on the play.

Thanks to dumb governments, there's even more to be made.