January 14, 2011
 
One of the greatest threats to economic growth is excessive regulation.  When Barack Obama pushed through the health bill and the financial regulatory bill he unleashed a virus into the economy.  The virus is the power of regulators to write laws at will.  We do not know, and will not know for some time, what the rules of the road are.  They are being written as we speak, they are subjective, and there will be thousands of them.

 

We have in just two years, become a nation run by Czars and regulators, not laws.

 

Take the tax code.  It takes over 6 billion hours a year to comply with it.  It rivals the biggest industries in this country.  Yet, all those employed in it, all very intelligent people, only work to serve the governments demands to collect taxes.  If we could all fill out a postcard and send in a check once a year, all that intelligence would be re-directed at producing something rather than producing nothing.  Can you imagine what a transference of that kind would mean to growth and productivity in this country?  Such is the case with all government over regulation. And such will be the case with these two new huge bills entering our lives.

 

The most important precondition of free market capitalism is a system of objective laws that endeavor to protect individual and property rights.  Without this no economic system can prosper.  The financial regulatory bill authorizing 183 new agencies with tens of thousands of new regulators, is an add on to redundancy and waste -- as is the health care bill.  

 

There are fifty volumes of regulations in the Code of Federal Regulations. There are 19,000 pages of federal regulations in total, not including the 2,500 pages of initial health regulations and 2,200 pages of financial regulations.  We have become a nation of regulations, not laws.

 

There was a time when we had one simple law for each act that was illegal. Everyone knew what they were and what they meant.  It did not require 19,000 pages to explain.  It required one law.  We had a law that stated we can not commit fraud against another individual, or use force or coercion against him, or commit theft. It did not consist of fifty volumes. Everyone understood what fraud was, and if you didn't, we were told that ignorance of the law was no excuse.  And punishment was quick and certain.  We knew what was against the law, and we knew what to expect if we broke the law.

 

The importance of objective laws that everyone understands is essential to a society -- even bad laws in tyrannical societies.  In China there are signs that say stay off the grass.  If you violate the law you are thrown into a Chinese prison.  In Shanghai, there is a law against graffiti. If you violate that law you are publicly lashed within an inch of your life.  In many countries, drug use is punishable by life in prison, and stealing in Iran is met with your hand being chopped off.  Adultery is punishable by death -- at least if you are a woman.  These are all terrible laws, but at least we know what they are, and what the consequences of breaking the law will be.  You won’t see me walking on the grass in China.

 

The one thing all of these laws have in common is they are clear and known.  They are objective.  But when you have unclear and unknown laws people can not know which actions they can or can not take without penalty.  Either they are forced to gamble or take no action at all.  This is the state of the economy today.

 

Suppose a committee got together every year to decide what colors the traffic signals should be.  Sometimes they decide red, sometimes green.  Every year you could never be sure.  Would it be unrealistic to assume under such a system, traffic accidents would rise and traffic would slow to a snails pace?  That is what happed to our economy with the passage of the two recent Obama bills.

 

The difference between a subjective set of rules, regulations, and laws compared with an objective one is the difference between order and chaos.  Today we are in the process of replacing objective laws with the subjective whims and degrees of bureaucrats.  We will not know what the rules of the road are until the regulators write them and even then not know until we see how they enforce them.

 

Is it any wonder that businesses have stopped hiring, banks stopped lending, and the pace of progress slowed to a crawl?  Just as the confusion over the traffic lights slow traffic, the ambiguous use of power by government regulators slow economic activity.

 

This is what is meant by all those calling for predictability and certainty.  They are telling government they are frozen in the headlights of oncoming changes, the likes of which they can not even guess.  We do not know, at the time of this writing, what health insurance rates will be this year.  Neither do insurance companies. We do not know the degree of paper work that we will be faced with or the rules we will be required to meet.  Do we really need to supply every one we deal with a 1099 form for a six hundred dollar transactions or more? And banks and trading exchanges are waiting for the rules by which they are expected to operate.  We asked for change, and now we have it.  We just don't know what it means.

 

It is no small matter.  Until we know what the rules are, we as a nation will be operating in slow motion -- tip toeing through our work day.  In some industries it will not be an issue.  But in others it will.  Watch out for the health industry and financial industry which has been the target of government regulation.  Stagnation or chaos in these industries can lead to huge consequences since they make up almost a third of our economy.

 

Hopefully, the new congress will bring a little more transparency to the new year.

 

Market Update:

 

It was nice to see RBY introduced to the world, Wednesday, on CNBC.  The CEO said "we are right next door to Gold Corp, the second largest mine in the world and we expect to become the next Gold Corp."  The stock shot up 6% on huge volume.

 

CDE was upgraded Tuesday: Analysts at Deutsche Bank raised their view of Coeur d'Alene to buy from hold with a 12-month price target of $54 a share as they became more bullish about the stock amid rising silver and gold prices.

 

Unfortunately the correction in metals continued this week and most stocks fell with the sell off.  As I mentioned last week, these corrections are never pleasant.  The thing you want to focus on is how you can take advantage of them.  Buying on dips and averaging is one way.  If this is your average garden variety type correction it will get scarier before it's over.

 

I have one third of my portfolio protected and ready to buy if and when I feel comfortable doing so.  But, I always look at the possibility that this is not a correction and the top is in.  If this were to be the case, the gold price would fall to an area of equilibrium of pre crisis levels.

 

If that were to happen you would want a plan to protect and preserve your profits.  One such plan is to diversify.  The companies I hold seem to me to be good investments long term, so I don't intend to mess with them.  I have taken profits and am sitting at much smaller and less speculative levels.

 

I want to bring your attention to a new stock.  I bought this stock this week, but only a very small position, which I may average if it falls.  The problem is it rarely falls -- it is a rocket.  It is Amazon Mining Holding, my symbol is AMHPF. (AMZ in Canada).  I would Google this company if you are interested in a new spec. 

 

The story of the company is compelling.  It is a potash company, and as you know agriculture is in great demand and one way to play the sector is through fertilizer, which farmers must have.  The twist with this stock is that it has found a method to create potash synthetically. This may not be just the start of a company, it could be the start of an industry. Amazon holds the patent.

 

The icing on the cake is that Jimmy Rogers, famed commodity king, has joined the board.  The stock has moved from 2.50 when I first became aware of it, and I waited for a pull back.  It promptly went to 3.50.  I waited for a pull back and it went to 5.  It now sits at near 8.  I bought a small position when it pulled back to 6.50.

 

This is needless to say a speculation and not for the faint of heart.  I decided I simply wanted a position in this company, held my nose and jumped in.  If it falls back below my purchase price I will average in a little more.  It will now show up on my list of holdings, as the second lowest position I hold.

 

Portfolio by weight:

 

TBT

Copper Fox Metals

Rubicon Minerals

Lexam

Coeur D'alene Mines
US Silver Corp
Amazon Mining Holding
Rochester Resources LTD