Porter: Why I don't vote...

Porter: Why I don't vote... Natural gas could be bigger than the Internet... Why the shale boom will help Obama... CVS Caremark's big numbers... Abbott's record bond issue... Jeff's "mind-blowing" essay...

 With Election Day finally here… Porter's written a new essay on this national rite. We've published it at the end of today's Digest… His thought-provoking piece is sure to rattle some cages (and prompt more than a few cancellations)… Make sure to check it out.

 Another U.S. industry heavyweight adopts Porter's shale thesis...

Regular Digest readers know Porter believes the U.S. shale oil and natural gas megatrend is "the biggest investment opportunity of [his] lifetime." Advancements in recovery techniques – horizontal drilling and hydraulic fracturing (or "fracking") – have unlocked unthinkable quantities of domestic oil and gas. In 2012, U.S. oil production rose 7% to an average of 10.9 million barrels per day. It's the fourth straight year of increases and the biggest one-year gain since 1951.

But that's just the beginning… as we've noted before… The U.S. is on track to tie Saudi Arabia as the world's leading oil producer (11.6 billion barrels per day) by the end of 2013... then leave the Saudis in the rearview mirror in 2014 and beyond. Citibank predicts the U.S. will produce 13 million to 15 million barrels per day by the end of the decade.

Yesterday, the financial news cable channel CNBC conducted an interview with Jack Welch, the former CEO of General Electric (GE). Welch is renowned for increasing GE's share price by 4,000% during his 20-year tenure. Welch shared his own thoughts on the U.S. shale revolution...

 Welch drew criticism last month for questioning the validity of the Bureau of Labor Statistics' (BLS) unemployment numbers. He implied the sudden drop in unemployment figures – the first time this level dropped below 8% in Obama's entire time in office – smacked of political maneuvering right before the election. We view all government data with a healthy skepticism... but Welch may not have appreciated just how many jobs the shale revolution is creating.

 The University of Texas' Center for Community and Business Research just published a new study on the economic impact of shale drilling in Texas. It compiled numbers from the 14 counties that comprise the Eagle Ford shale. In 2011, the shale revolution was responsible for creating 38,000 full-time jobs in those counties. This accounts for more than $10.5 billion in gross regional product.

By 2021, analysts predict the Eagle Ford will see more than 82,000 people employed there, driving more than $34 billion in gross regional product. By way of comparison, the 14 counties of the Eagle Ford will produce more economic activity than entire states, including Vermont, Wyoming, and South Dakota.

 Keep in mind, the Eagle Ford is just one shale oilfield. The U.S. contains dozens of shale oil and gas deposits. Many encompass several states (the Marcellus shale covers the majority of Ohio, Pennsylvania, West Virginia, and New York). Oil and gas producers need workers to man drilling rigs. Pipelines need workers to create critical transportation infrastructure. Steel mills need workers to create steel pipe. Restaurants need workers to feed laborers. Developers need contractors to build housing and centers of commerce. The list of productive business activities goes on and on... and the free market bore them all.

 We find it the height of irony that Obama – prophet of "change" and pusher of the magical "green economy" – will see his presidency saved not by the sun or the wind... but by his hated hydrocarbons.

Porter has taken this idea a step further... he's suggested the U.S. shale revolution will secure not only a second term for Obama... but a third term as well. Let's just say it's created a little controversy for him across the country. If you haven't heard Porter explain his prediction… we urge you to check out the full details here.

 Retirement Millionaire pick CVS Caremark announced blockbuster quarterly earnings... The country's second-largest drugstore chain beat analyst estimates for net income and raised future guidance. CVS earned $1.01 billion in the third quarter, up from $868 million a year ago. Revenue rose 13.3% to $30.23 billion.

The company said it expects to post full-year 2012 earnings of $3.38 to $3.41 per share – up from previous guidance of $3.32 to $3.38. This is the fourth time CVS raised its guidance this year... Its numbers are improving as the drugstore keeps the prescription business that rival chain Walgreens lost after leaving pharmacy-benefits manager Express Scripts at the beginning of the year over a contract dispute.

 We last wrote about CVS' earnings and why Retirement Millionaire editor, Dr. David "Doc" Eifrig, loves the stock in the August 8 Digest. From the June 2011 Retirement Millionaire…

Retirement Millionaire readers are currently up nearly 25% on CVS since then...

 And Doc remains bullish on stocks and bonds, in general. Yesterday, we pointed to some stats he uses that show our economy is still "grinding higher."

In his latest update to Retirement Millionaire subscribers, Doc pointed to two more major reasons investors shouldn't yet worry about inflation and its potential to undermine bond and stock investments... Energy and transportation prices are both dropping.

At $4 per thousand cubic feet (mcf), natural gas has climbed recently for its lows of late April… but it remains far off its $8-per-mcf levels of the past, Doc noted. And oil is "drifting lower," too, he wrote.

Finally, the Baltic Dry Index – which tracks the prices charged by maritime shippers to move goods across 23 different shipping lanes – just reported its lowest quarter in 14 years. It's down 50% in just the past year.

Doc concluded: "This is all good news for bond and stock investors..."

 Even so… bond buyers need to proceed cautiously. With yields at record lows… even a small uptick in price inflation can undermine an investment.

Take the latest bond offering from 12% Letter health care pick Abbott Labs... AbbVie, a unit of Abbott Laboratories, sold $14.7 billion of bonds on Monday. It was the U.S. market's largest offering in more than three years and the third-largest corporate offering ever, according to data provider Dealogic.

AbbVie's 10-year bonds yielded 2.795% (110 basis points – 1/100th of a percent – above comparable Treasurys). The 30-year bonds yielded at 4.463%, 171 basis points above comparable Treasurys.

The deal was more than three times oversubscribed, with orders for $37 billion – signaling the market's huge demand for investment-grade corporate bonds.

 The company said it will use some of the $8.5 billion to pay down existing debt. Abbott didn't disclose what it will do with the rest, but we have a suggestion... Buy back stock. Abbott shares pay a dividend yield of 3.1% and have much more upside than the bonds...

 Stansberry & Associates' financial news and opinion aggregator website The Daily Crux recently conducted an interview with resource expert Rick Rule. In the interview, Rick shared the details on one of his favorite energy investments today... He calls it the "most dramatic speculative opportunity in energy today." Rick believes this asset is underpriced by nearly 50% today... And there are plenty of catalysts to bring this resource closer to its full value.

The interview is completely free. You can access it here...

 New 52-week highs (as of 11/5/12): Guggenheim China Real Estate Fund (TAO).

 Today's mailbag was a little light today. We figure Porter's essay below should fix that… Send your comments to feedback@stansberryresearch.com.

 "Every so often I come across a statement or an article that rings so true or expresses a sub-conscious belief, that I figuratively slap my forehead and want to share it with everyone I know. I got that feeling reading Jeff Clark's commentary on a 'Mickey Mouse Tax System.' In its generosity, Americans have enabled too many nontaxpayers to live off the stolen wages of those of us who have worked a lifetime. The politicians are now telling us: 'It's still not enough. You have to give us more.' As Jeff observes, with an equal tax, across the board, everyone would have 'skin in the game.' Everyone would have a greater interest in having responsible, honest government representatives to protect their common interests." – Paid-up subscriber Henry Ruddy

Goldsmith comment: We ran Jeff's essay series on a "Mickey Mouse Tax System" last weekend in our Digest Masters Series. These essays are brilliant and explain – using a simple metaphor – why a progressive tax regime is so ludicrous. When we originally published these essays in September, Porter wrote Jeff an e-mail saying they were "mind-blowing." He publicly declared them "brilliant" and perhaps the best essay we've ever published. You can read them here and here.

Regards,

Why I Don't Vote... And You Shouldn't Either

By Porter Stansberry

My good friend and intellectual mentor, Doug Casey, recently shared the five reasons why he doesn't vote.

He typically re-publishes these thoughts every four years. Perhaps you've seen them before.

While I agree with Doug in principle... I have a wholly different rationale for not voting. Given today's election, I thought I'd tell you about it.

The reason I don't vote (and you shouldn't either) is...

Our current system of governance is nothing more than tyranny, and it's on track to destroy our country.

Like Doug says, asking me to vote is like four wolves sitting around the table asking the sheep what he'd like for dinner. It certainly doesn't matter what the sheep says. Asking me to participate in this charade won't bring it any legitimacy; it will only make me party to the fraud. Asking me to vote is like asking a free man to put himself willingly into bondage. It's insulting.

And when I say that my vote doesn't count, I don't mean no one will count it. I mean that, given the structure of our tax laws, there's no way my voice will possibly matter.

I currently spend about 50 times more on federal taxes than the median taxpayer. I pay a rate of federal tax that's more than double the average rate.

The 14th Amendment supposedly protects me against this kind of inequity. It promises me the "equal protection" of the laws and says the state can't deprive me of my property without due process. But the last time there was a dispute about my taxes, the state seized every penny of my assets it could find. It took my checking account and my brokerage account without even bothering to tell me. It moved to put a lien on my house. I found out what was happening via a letter from Bank of America.

The IRS offered me no due process; it didn't even notify me.

And I certainly enjoy no equal protection. Just look at the rate and amounts I pay compared with more than 90% of other people in this country. (By the way, the matter was resolved after about six months. Turns out the state owed me $2,000 in refunds. They declined to pay me, citing the statute of limitations. True story.)

It is impossible for me to peacefully object to this kind of tyranny. Even if I were to give up my citizenship and leave the country, I would be forced to pay an exit tax that's roughly equal to the death tax my heirs will be forced to pay on my estate. These are the same kind of laws, by the way, that kept a generation of people locked behind the Iron Curtain. Leaving meant giving up all of your wealth. I can't possibly vote my way out of this situation. I can't peacefully object. I can't exit. Nor can I petition the courts for redress, as the Supreme Court as specifically ruled that the Bill of Rights doesn't apply to revenue matters. (See Lehnhausen v. Lake Shore Auto Parts Co... a 9-0 decision.)

I understand no one will feel sorry for me. The vast majority of folks will continue to vote. And what they'll vote for is more and more of my wallet. They are the proverbial wolves. And I am the proverbial sheep. When the sheep complains, the wolves just laugh.

That's fine with me... I will get the last laugh.

You see, this system will inevitably lead to more and more government, higher and higher taxes, and bigger and bigger deficits. This system will eventually destroy our country, just as abuses like these have destroyed every democracy in history. Along the way, with a very small intellectual advantage, I will earn far more from various non-reported speculations (gold, silver, foreign real estate, etc.) than the government will be able to tax. The sheep may be shorn... but he will not be eaten. The wolves, meanwhile, will soon be feeding on each other.

This kind of progressive tax structure, where a tiny fraction of the population pays for essentially all of the government's spending, creates the illusion that the government and its services are free. Our system is a lie. The lie is that you can live at the expense of your neighbor.

Yes, it sure seems true right now. Today, about 10% of the population pays for roughly 75% of all income taxes. Looks like everything is working out the way the voters want... They want more government services... They want free "Obama phones"... and EBT cards that can purchase luxury items and booze... and discounted housing... and cheap mortgages... and free education... and free health care...

They want it all. And they will vote for it every time. More and more.

By 2011, 49.1% of American households received some form of direct benefits from the federal government. As a result, more than 60% of Americans now receive more benefits from the federal government than they pay in taxes.

Folks who are the recipients of this largesse have developed sophisticated arguments to explain why this is "fair" and "right." But the truth is, it doesn't really matter what they say. In a democracy, every argument about what's legal eventually comes down to the ballot box. And there's no way the 10% who have to pay can compete with the 90% who don't when it comes to a vote.

And so... since 1960, the average federal tax burden per family in the U.S. has soared. In real dollars (indexed to 2011), the tax burden in America has gone from $11,500 per household to almost $25,000 annually. Just ask yourself this question... how can the median household, which earned $50,000 in 2011, afford to spend half its income on taxes? Obviously, it can't. And by having sharply progressive taxation, it doesn't have to... at least on paper. We'll come back to this in a minute.

First... even though the mob can clearly vote itself whatever tax structure it wants... the tax burden is now painful enough to seriously harm the economy. That is, even though the political feedback loop is broken (the majority of voters don't have to pay the taxes, so there's nothing to stop them), the economic feedback loop can't be subverted. So the government has begun borrowing enormous amounts in order to satisfy the demands of the mob. Specifically, the federal government is now spending $3.5 trillion a year. Income taxes only raise $1.1 trillion a year. Thus, even if you doubled income taxes, we'd still run a deficit every year.

My friends... that's pure insanity. That's why every time there's a committee of one kind or another that's tasked with solving our government's giant fiscal problems, it always comes back with nothing. No one in Washington wants to admit how much trouble we're in. There's no way to fix the system. The hole is far, far too big.

No government can survive long when it spends more than twice what it collects in tax revenue. Not even when it holds the world's reserve currency and has the world's most powerful armed forces. Just ask the Romans.

Yes, I know, the feds also collect about $250 billion in corporate taxes, but that doesn't change the math in any material way. And yes, I know all about the payroll taxes that support Medicare and Social Security. But you can't count those funds against the current spending because all that money ought to be going toward the future obligations of those programs.

The problem is that our political process – where the masses are allowed to vote themselves nearly unlimited benefits – masks the underlying economics. While any given individual might not have to suffer these burdens, everyone lives within the same economic sphere. We, as a nation, have a limited amount of economic power. We have a limited amount of opportunity. We have a limited about of credit (believe it or not). And right now, the government is taking up a huge amount of these economic assets, an amount that can't possibly be sustained.

We are now spending $6.3 trillion a year on government at every level. That's $55,000 per household in the U.S. In other words, if we all paid equally for the burden of government on a per-household basis, the average household would owe the government more than 100% of what it brings in.

Obviously, if everyone had to pay these taxes... if everyone had to share equally in the burden of the government... then none of this spending would have happened. None of these debts would have accrued. And we would have never ended up in this position.

Politics masks these costs for the individual, who believes he won't have to pay. He thinks he can simply vote... and make people like me pay. But what he doesn't understand – and never will – is that the politics can't change economics.

Our economy can't afford our government. Our economy can't afford these debts – or even the debt service at any legitimate interest rate.

At some point very soon, this economic reality will overwhelm the political charade.

That's why I don't vote.

Regards,

Porter Stansberry

P.S. My wife says she's going to vote for Libertarian candidate Gary Johnson today. She says it's her civic duty to vote. I understand her view. If you feel the same, I'd recommend voting for Gary Johnson. I've had dinner with him, and I supported his campaign. If he were elected, he could do a lot to help turn around our country.