Snow Cones and SWAT Teams

Dave Gonigam – December 7, 2011

• Outrage over $11,700 for “homeland security snow cones”… while nearly $500 million in military surplus for local cops goes unnoticed
• Eurodrama on pause: Rumor drives market up, denial drives market down
• The elephant in the room when it comes to the payroll tax cut debate in Washington
• Highly anticipated tech toy arrives in stores Dec. 19… Ray Blanco on the game-changing investment implications
• Gold steady while precious metals ETF inflows explode… a stock offering sure to be oversubscribed… reader sees the upside of a European downgrade… and more!

   It’s one of those stories guaranteed to generate outrage — government spending $11,700 on snow cone machines from a budget allocated for “homeland security.”

Maybe you saw it: The West Michigan Shoreline Regional Development Commission bought 11 of the machines with state money to distribute to its member counties and cites.

The purchase was justified in an “allowable cost justification” document issued by the Michigan Homeland Security Grant Program. The intended purpose, as reported by the Greenville Daily News: “The snow cone machines can make ice to prevent heat-related illnesses during emergencies, treat injuries and provide snow cones as an outreach at promotional events.”

   Meanwhile, in a “homeland security” story that didn’t get nearly as much play yesterday, a Pentagon program that supplies military surplus to local police agencies has doubled in size only the last year.

Under the “1033 program,” the Defense Department gave away nearly $500 million worth of grenade launchers, helicopters, military robots, M-16 rifles and armored vehicles during fiscal 2011.

“Passed by Congress in 1997,” reports The Daily, “the 1033 program was created to provide law enforcement agencies with tools to fight drugs and terrorism. Since then, more than 17,000 agencies have taken in $2.6 billion worth of equipment for nearly free, paying only the cost of delivery.”

That is, the 1033 program is one of the reasons, as we discussed last month, that nearly every police department in the country now has a SWAT team. And according to The Daily, it’s how Cobb County, Ga., now has an amphibious tank… and Richland County, S.C., has an armored personnel carrier equipped with a machine gun.

“It’s kind of had a corrupting influence on the culture of policing in America,” says the Cato Institute’s Timothy Lynch. “They say, look we’ve got this equipment, this training and we haven’t been using it. That’s where it starts to creep into routine policing.”

This growing militarization of the police is another facet of what John Robb at Global Guerrillas labels the “hollow state” — an institution that “has the trappings of a modern nation-state… but it lacks any of the legitimacy, services and control of its historical counterpart… Corruption and violence are its only traits.”

We’ll pick up the theme in future issues of Apogee Advisory. Not a subscriber yet? Here’s where to start.

   Again today, Europe is proving the prime mover of markets — up on a rumor, down as the rumor is dispelled.

Yesterday afternoon, the rumor was that that the size of the eurozone bailout fund would be doubled. Or maybe it was the creation of a second bailout fund … No one was really clear on that.

Not only were the essential details fuzzy, there was no discussion about where the money for either scheme would come from. But hey, it was good for about 100 Dow points by the end of the day.

No surprise, but the rumor appeared to have less basis in fact — and an even shorter shelf life — than this week’s rumor about Brett Favre staging a comeback with the Chicago Bears.

“A German government official said the country rejects” the proposals, Bloomberg reports this morning, “and is pessimistic about the outcome of this week’s summit.”

Aw, bummer. As of this writing, the major indexes have surrendered most of yesterday’s gains, although the Dow still rests comfortably above 12,000.

The European Central Bank meets tomorrow to set interest rates, while European Union leaders meet on Friday.

[Breaking News: Moments ago, Dan Amoss issued his recommendation on how to profit from the slow-motion meltdown in Europe. It just landed in the inbox of every subscriber to Strategic Short Report.

A similar recommendation he issued in the midst of the 2008 financial crisis was worth 338% gains in four months. “If I were you,” writes Dan, “I’d read this full report and act before Friday, Dec. 9’s EU summit!” That’s less than 48 hours from now. Here’s where you can get your copy.]

   With 24 days remaining till the end of the year, congressional leaders are scrambling to come up with plan to extend this year’s payroll tax cut before it expires.

“The idea behind a payroll tax cut,” says Jim Nelson of our income desk, “is that every paycheck workers receive will be slightly larger — by an almost unnoticeable amount. And it is supposed to get people to spend that extra cash, which would spur the economy.

“Unfortunately, those checks are larger because you pay a lower rate into the Social Security trust fund.”

“Well, as we noted last year, on Sept. 30, 2010, that trust started spending more than it collects in taxes — and that’s before Congress went ahead and cut its revenue last December. Now they are trying to do it again, this time from 4.2% (originally 6.2%) to 3.1%.”

Democrats and Republicans are hung up on how to make up for the lost revenue… and in they end, they might well punt. “Our fear,” Jim says, “is that the idea of passing yet another tax cut will be too appealing to too many in Congress… but instead of paying for it, it will, again, just be left for a later date.

“With just half of the current revenue stream — which is already far too little — the Social Security Trust will drain even faster.”

If you’re still earning a paycheck, you might want to think about channeling the money you get from the tax cut into something that can generate a stream of income — both now and for your retirement. Jim has an excellent suggestion here.

   Gold is meandering today, the spot price currently $1,734. Silver isn’t moving much either; at last check, it was $32.64.

   Inflows to the gold exchange-traded funds quadrupled from October to November, according to Birinyi Associates. Retail and professional investors combined to plow $3.6 billion into gold ETFs.

In contrast, ETFs with investment-grade corporate bonds pulled in only $1.7 billion… and that was the No. 2 category behind gold.

   Once the Federal Reserve embarks on a new round of easy money, gold “could definitely get to new highs,” says Tocqueville Gold Fund manager John Hathaway.

“I mean new highs are not that far from where we are. It just seems to me that it’s (gold is) a coiling spring. It tries to go to new lows, but… if you just look at the pattern of higher lows, I find that very encouraging. If it can’t go down, ultimately, it’s going to go higher.”

   “I suspect,” says Ray Blanco of our tech team, “we will see mobile devices like tablets begin to eat into market share for gaming consoles in the near future.”

That’s because in 12 more days, “the world’s first quad-core tablet computer, the Asus Transformer Prime, will become available. For the first time, a mobile device can deliver a graphics experience comparable to a gaming console like the popular Microsoft Xbox or Sony PlayStation.”

The Transformer Prime features a speedy and efficient mobile processing platform called Tegra 3. “This will create a market for a whole new class of mobile games,” Ray explains.

“Mobile-game designers are already designing games to specifically take advantage of Tegra 3’s capabilities. New Tegra 3 tablets will be able to communicate with game controllers and connect to large flat-panel displays while transmitting full high-definition video graphics.”

The Asus tablet features technology supplied by two companies in Ray’s Technology Profits Confidential portfolio… and it’s an excellent example of how you can profit when something Ray calls the “innovation curve” starts to accelerate.

Before you load up on tech toys for the holidays, learn how you can pocket some profits from the trend.

   And now for a stock offering in which everyone takes delivery of his certificates… because that’s about the only benefit that ownership confers.

As we mentioned earlier this year just before the Super Bowl, the Green Bay Packers are a publicly owned nonprofit — the only one of its kind in big-league sports.

It has 112,015 shareholders who care little that they receive no dividend… will never collect a capital gain… and don’t even get a discount on tickets. And that number is growing again this week.

Packers shares went on sale yesterday priced at $250 each — plus a $25 per order handling charge.

The team hopes to sell 250,000 shares to help finance a $143 million project to spiff up Lambeau Field and add 7,000 seats. More than 10% of the shares were snapped up in the first 2½ hours.

Not surprising… This is only the fifth stock offering in the franchise’s 92-year history… and the first since 1997. “I think with the Internet and online sales, it has an opportunity to be much more national than it has in the past,” says the team’s CEO and president Mark Murphy.

Not everyone who wants to participate will be able to do so, however: “Until regulators in the states of New Hampshire and Virginia allow the offering to proceed in those states,” says a notice on the order page, “residents of those states will not be able to purchase shares.”

Hmmm… What if you have them sent to a relative in another state? Would you be breaking the law? Imagine the headline: “Die-Hard Packer Backer in Virginia Prosecuted for Supporting Team.”

Actually, it doesn’t sound that far-fetched…

   “If the International Monetary Fund contributes to the bailout of Europe,” a reader inquires, “and the U.S. is responsible for 17% of the IMF’s funding, how is that unknown quantity figured into the budget and debt limit of the U.S.?”

“Or is this more off-the-books accounting that appears from thin air?”

The 5: If it comes out of existing IMF funds, then presumably it’d be on budget. If it’s an “emergency” allocation, then it would likely be off budget.

But with $1 trillion-plus deficits the last three years… does it even matter anymore?

   “Just think how these downgrades can help the USA,” a reader writes after word that S&P put most of the eurozone on negative watch.

“They won’t need to confiscate half of all IRAs and 401(k)s if all other countries lose their AAA status. The only asset pensions, insurance companies and whatnot can invest in will be the good ole US of A. Right up until they don’t have anything to invest in. Then I’m sure the rules will change to allow them to invest in U.S. Treasuries. Right up until they default!

“Nice deal we have going here!”

   “Considering the Senate version of the National Defense Authorization Act with its Levin/McCain detention amendment,” a reader asks rhetorically, “aren’t your readers referring to ‘Merkel/Hitler’ focusing on the wrong side of the Atlantic? Can you spell ‘Gestapo’?”

   “If Utah passed a law approving silver and gold coins as legal tender,” our final correspondent writes, “then the man who tried to pay his property taxes with them should sue! Legal tender (is) legal tender.

“He should not pay property taxes at all. We should stand up to this incompetent government. What about a Great American Tax-Out?”

The 5: Sure… but what would it look like? How would people participate? And how can it be sure to have an impact?

We invite The 5’s readership to apply their imagination to a “Tax-Out.” Reply here.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Even as the broad market is down today, a pharmaceutical play recommended by Jonas Elmerraji is pushing upward. He’s urging his Penny Momentum Trader readers to cash in 41% gains after only one week.

Looking over a spreadsheet of Jonas’ trading recommendations during the up-and-down, going-nowhere market of the last four months… we see for the most part he’s sat it out. But the handful of moves he’s made have been wise: Eight trades total, with an average gain of more than 10%… across an average hold time of 11 days.

Not bad at a time the major indexes sit where they were at this time in August, no? Learn about Jonas’ strategy and how to put it to work in your own portfolio right here.