This from Investors Daily Edge:

From the government that brought you $1,000 toilet seats and $500 hammers comes the “Great Economic Stimulus Boondoggle of 2009″. Okay, while it might be an appropriate title, that’s not what it is called. President-Elect Obama’s stimulus plan is actually called the “American Recovery and Reinvestment Plan.”

In my article last week, I brought up the distinct parallels to Ayn Rand’s book Atlas Shrugged and what is happening in the financial and political world today. In a Wall Street Journal article highlighting these startling similarities, Stephen Moore tells how Rand pilloried various acts of government futility and their “benevolent-sounding titles”.

There is the:

• “Anti-Greed Act” which is meant to redistribute income
• “Equalization of Opportunity Act” to prevent people from starting more than one business (to give others a fair chance) and the
• “Anti Dog-Eat-Dog Act” to restrict competition between firms and slow the wave of business bankruptcies.

While these acts sound far-fetched, they are not too far removed from what we have seen from Washington in recent months, such as the $700 billion “Emergency Economic Stabilization Act” and the “Auto Industry Financing and Restructuring Act” which followed.

And now we look forward to what will certainly be one of the biggest government-spending programs in history – Obama’s “American Recovery and Reinvestment Plan”.

Will it work? Will it help America to “recover”? Of course not. Let us count the flaws and discuss why this plan not only will not help America to “recover”, but will make the sick patient even sicker.

In a speech before the student body at George Mason University on January 8, 2009, President-Elect Obama stated:

“It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”

I won’t even go into the assumption that what Obama is looking to do is provide a “short-term boost.” Do you really think this will be a quick in and out procedure? Not hardly.

But the bigger flaw is Obama’s Keynesian assumption that government can fix this economic downturn by increasing spending. In some cases, government spending can boost the economy. But most economists agree that too large an infusion of government spending ultimately slows growth, raises interest rates, and makes tax increases a certainty.

Federal government spending already accounts for one out of every four dollars in U.S. economic activity. This is the highest rate since World War II and it’s only going higher.

Let’s return to Obama’s recent speech:

“Only government can break the cycle that is crippling our economy – where a lack of spending leads to lost jobs, which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”

Now we’re getting somewhere. According to Obama, what is crippling our economy is a “lack of spending” and “an inability to lend and borrow”. So our economic problems have nothing to do with loose monetary policy, the systematic dismantling of prudent regulations by crony capitalist bankers and legislators, and the parasitic expenses of an out-of-control government.

None of those things had anything to do with our current situation. Instead, we got here by not spending enough, not consuming enough and not borrowing enough. Debt is a large part of what got us into this mess. More debt will not get us out.

The President-Elect continues:

“[...] we need to put money in the pockets of the American people, create new jobs, and invest in our future.”

Obama has stated that he plans to create over 2.5 million jobs. But artificially created jobs will not boost the economy. What we need is increasing productivity. And you don’t get that through government programs.

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In a recent essay, Ron Paul wrote:

“A ‘job’ could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. The value in that paycheck ultimately has to come from taxing someone productive.”

It doesn’t take much thinking to reach the conclusion that this closed-circle economic model won’t get us anywhere, and is, in fact totally counter-productive in the long-run.

But the bigger question – one that very few in Washington seem to be asking – is where is all this money going to come from?

On January 6,  the Congressional Budget Office (CBO) released the government’s latest budget forecast. The CBO estimates that the U.S. deficit for fiscal 2009 will be nearly $1.2 trillion!

This level of deficit spending is entirely unsupportable, especially for a nation as far in debt as we are already are. But this figure is not even the half of it… literally.

The CBO estimate does not factor in the spending increases and tax cuts proposed in Obama’s stimulus package. Nor does it include new healthcare promises. And that’s not all. The CBO estimate also includes numerous unlikely assumptions. To wit, that:

• There will be no more bank failures or bailouts (just yesterday Bank of America rattled the cup for a few more billion)
• Federal revenues will remain stable (no rising unemployment or corporate losses leading to falling tax revenues)
• The government will get most of its bailout money back (the assumption is that 75% of the TARP program funds will be paid or earned back)
• Interest rates on government debt will continue to decline (these interest rates are already at more than 50-year lows, and in a recent report I sent to 20th Century Prosperity subscribers, I showed why they will inevitably rise and how to profit)

When Casey Research analyst Bud Conrad accounted for what is not included in the budget deficit along with the goldilocks assumptions, he came up with a 2009 deficit of $3 trillion!

Thankfully, besides Ron Paul, there is at least one other politician in Washington asking the question, where is all this money going to come from. Speaking to the Washington Times, Michele Bachmann (R-Minn) said:

“[...] someone has to pay for [the stimulus package] whether it’s today’s taxpayers or their children and grandchildren. There comes a time when government simply cannot provide enough government jobs to bolster the economy. There comes a time when the taxpayers’ burden to pay for all of the projects is too heavy to carry. With the trillions in bailouts and stimulus packages that have already been passed and that are in the works, that time may be sooner than we think.

“Government should not take on the role of creating the jobs and buying the goods. Government should be in the business of establishing an environment in which businesses can thrive and play those roles themselves. Americans need a stimulus proposal that actually stimulates the economy.”

I heartily agree. But I am also realistic enough to understand that that is not what we are going to get. What we will get is a massive “stimulus” program with an emphasis on infrastructure, similar to the public-works projects of the Great Depression.

If you’re looking for a way to capitalize on the government-sponsored bull market in infrastructure, I expect there will be some upside to the usual cast of companies that benefit from government construction and engineering projects. Companies like Fluor (NYSE:FLR), Shaw Group (NYSE:SGR) and Jacobs Engineering Group (NYSE:JEC).

But the real winners – in the long-term – will be those investments that benefit most from rising inflation… precious metals and precious metals mining stocks.

Source: The Great Stimulus Boondoggle (And How to Profit)

This from Taipan Daily:

If you drive on U.S. roads, you probably don’t need to be told – the country’s infrastructure is in pretty bad shape.

As a nation, Americans like to look forward. We prefer to spend our money building new things (rather than fixing up old things). Issues like repair and maintenance are back-burnered for other priorities in state and federal budgets. Over time, the cost of neglect rises.

In 2007 we were hit with a long overdue wake-up call: a Minneapolis bridge collapsed. Thirteen drivers were killed.

A Serious Problem

I don’t know about you, but I routinely drive over bridges and interpasses without worry (just as 200 million other U.S. drivers do). The bridge collapse was seen as a freak occurrence, a one-off… but imagine if that changed. The climate of fear could cripple our roadways, and that would be disastrous.

Dale Reiss, vice chairman of the Urban Land Institute in Washington, believes that “at some point, the system could grind to a halt” if we don’t do something about the crumbling state of our highways, roads and bridges.

In Atlanta, Ga., for example – the city where your humble editor went to high school – rush-hour trips are projected to take 75% longer by the year 2030. (If you’ve ever braved Atlanta traffic, you know that’s no joke.)

The estimated repair bill is staggering. A report titled “Infrastructure 2007: A Global Perspective” argues that the U.S. faces a $1.6 trillion deficit for repair and maintenance through the year 2010.

It may not seem like it these days, but $1.6 trillion is still a serious chunk of change. (Unless your name is Hank Paulson or Ben Bernanke, that is.)

Keep in mind, too, that the $1.6 trillion repair bill estimate is only through 2010. When you look at the long-term estimates for needed infrastructure and repair costs – stretching out into decades – you get a repair bill in the tens of trillions.

Keynes to the Rescue!

So, given the above news, the logical John Q. Taxpayer reaction would be something like, “Holy smokes, that’s a lot of dough to spend on repairs.”

But in Washington, D.C. – where everybody and their brother is a John Maynard Keynes fan – the reaction is “Hooray! Something huge to throw money at!”

Deflation fears are all the rage now as you know… the Fed just cut rates to zero… Chrysler is hurting so bad it’s shutting down operations for a month… and President-elect Obama is getting ready to swoop in with the mother of all stimulus plans. Money needs to be spent… and by gum, we’re gonna spend it on infrastructure.

The total amount of “Obama stimulus” seems to yo-yo up and down, like a mood ring attuned to the general anxieties of U.S. taxpayers. The initial amount being bandied about was $600 billion. In recent days the whispers have expanded it to a cool trillion – the big T word – or maybe even more.

On Dec. 6, President-elect Obama put some flesh on the bones of his stimulus plan, pledging “the largest new investment in roads and bridges since President Dwight D. Eisenhower built the interstate system in the 1950s” (according to the Wall Street Journal).

President-elect Obama also promised, in his own words, to “launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen.”

(Side note: why do most public schools look like prisons? Have you ever noticed that? I don’t get it.)

“Use It or Lose It”

When Obama unveiled his five-point plan earlier this month – encompassing energy, roads and bridges, schools, broadband and electronic medical records – the thing that really made my ears perk up was the “use it or lose it” provision.

Here is the President-elect, again in his own words:

We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.

Have you ever seen the movie Brewster’s Millions? It’s a classic 80s comedy in which Richard Pryor, a minor league baseball player, has to blow 30 million dollars in thirty days – without telling anyone why – in order to inherit $300 million more from an eccentric relative.

The use-it-or-lose-it provision made me think of Brewster’s Millions… perhaps updated here as Obama’s Trillions. In order to meet the stimulus-driven desires of Washington, the states are going to have to shovel this road-and-bridge cash out the door, pronto.

You can almost hear the CEOs of the big construction companies doing a Homer Simpson: Woo-Hoo!

How to Play It?

So we know that the state of America’s infrastructure is a real and serious problem – one that will take years, if not decades, to fully put right.

We also know that Washington is bound and determined to drop a money bomb on that problem, in order to stimulate our sagging economy and create millions of new jobs.

So the obvious question is, how to play it?

Here’s a quick look at some of the major players that could benefit (all traded on the New York Stock Exchange).

Name	Symbol (all NYSE)	P/E Ratio	Market Cap
Fluor Corporation	FLR	11.52	8.98B
Jacobs Engineering Corp.	JEC	14.35	5.98B
Caterpillar Inc.	CAT	7.16	26.16B
The Shaw Group Inc.	SGR	12.47	1.74B
Chicago Bridge & Iron	CBI	n/a	1.13B
URS Corporation	URS	16.03	3.34B
McDermott International	MDR	4.20	2.27B
Perini Corporation	PCR	6.10	1.16B

If you pull up charts for the above names, you’ll see that every single one is in some form of uptrend – as is wholly to be expected, given the Obama news and the longer-term prospects for fattened construction company coffers.

Which of them to buy, though? Another option is just to go with an ETF, like the PowerShares Dynamic Building & Construction ETF (NYSE:PKB).

As you can see, PKB is headed in the right direction. The ETF saw a surge in volume on the “Obama breakout” when the stimulus plans were announced, and the price action is strong.

But PKB has a few problems that make it a less than ideal choice.

For one, PKB’s average volume isn’t so hot at less than 100K shares per day. The volume is doable from a trading standpoint, but getting down to where lack of liquidity starts to be a concern.

Even more of a concern, from our perspective, is the fact that PKB’s top 10 holdings include Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW). We’re not interested in DIY (do-it-yourself) retail or anything aimed at the consumer here, so that’s a real drawback.

Here’s where I turned to the man with the micro plan, Zach Scheidt (a.k.a Cash McDash), to get his take on how to play the Obama infrastructure boom.

Smaller Is Better

The first thing Zach pointed out to me is that, in terms of getting the most bang for one’s trading and investing buck, smaller is better as a rule of thumb.

Here’s what he means…

The major go-to names (the ones in the list noted above) should do well as a result of Obama’s big plans. In fact, they could very well offer double-digit returns in the coming years – nothing to sneeze at.

But, in Zach’s view, most of those multi-billion-dollar market cap names are too big to see the needle really move as a result of this road-and-bridge cash flood… the way it could with some of the smaller, less well-known infrastructure names.

“Think of an 18-wheeler semi-tractor trailer versus a sports car,” Zach told me.

“You can certainly cover ground in a big rig… but you just can’t get up to speed all that fast. So just as a fully loaded 18-wheeler can’t accelerate all that quickly (even on a brand new Obama highway), the big, well-known infrastructure names aren’t set to deliver the velocity of returns that some of the smaller names can.”

This program – which I call the “13F Disbursement Plan” – allows you to legally skim money from the cutthroat Wall Street firms who’ve gotten obscenely rich at the expense of ordinary folks like you and me.

By following the detailed instructions outlined in this letter, you’ll learn how to add $4,570 to $11,450 to your bank account every month, courtesy of the U.S. Government.

Read on for more information…

“Think of a Porsche,” Zach continued, “or maybe a Corvette, out of respect for the ailing Big Three. An infrastructure play with a market cap of just a few hundred million – as opposed to billions – is like the Corvette. The Obama plan’s impact on revenues will be that much greater for these smaller players… and in terms of shareholder return, the Corvette should leave the 18-wheeler in the dust.”

I asked Zach if he had any names in mind. He responded as if I had just insulted his honor. Of course he had some names on his roster – what self-respecting trader wouldn’t want a piece of this trend?

“In particular, I’m looking at one company that has a market cap of less than $300 million,” Zach said. “I haven’t pulled the trigger on it for Taipan subscribers yet, but my preliminary research suggests it could be a double or a triple within the next 12 to 18 months.”

Lawyers and Bulldozers

I then asked Zach what readers should look for as they scout for these infrastructure “Corvettes” themselves.

His response: “One thing that’s really important is to look at the lines of business. In particular, I like names that have the ability to make money on the construction side and the consulting side.”

“You can think of the two lines – construction and consulting – as the ‘bulldozer team’ and the ‘lawyer team.’ Before a structure can be upgraded or a new bridge can be built, a number of assessments have to be made. Sometimes there’s a lot of red tape – especially when NIMBY interests (the ‘Not In My Back Yard’ people) get involved.”

“So the smaller infrastructure names with dual lines of business – like the one I’m zeroing in on for Taipan subscribers – can make money on both sides of the coin. During the assessment period, while the project is being held up by red tape, they send in the lawyers and the guys with the clipboards. This allows them to make fat profit margins on their consulting fees.”

“Then, when the project actually gets underway, the ‘lawyer team’ packs up and the ‘bulldozer team’ rolls in… allowing the company to make another big chunk of profits on the construction side. Nobody likes red tape, but it’s a beautiful racket – a way to make money coming and going.”

Source: How to Play the Obama Infrastructure Boom

This from Money Morning:

Although bank-to-bank loan rates fell for the sixth-straight day yesterday (Monday) – decreasing fears that the corporate-lending market was going to seize up – a new reality has emerged: As the song says, “only the strong will survive.”

Strong companies will navigate the uncertainties of the markets in the months and years go come; weaker players will falter, fall into bankruptcy, and get gobbled up by larger, more-healthy companies.

“This is unequivocally, absolutely, positively” the new reality, says R. Shah Gilani, a retired hedge-fund manager and Money Morning contributing editor who has emerged as a top expert on the global credit crisis. “And the unspoken reason is that even after the credit crisis has been alleviated, it will not be over.”

If the credit markets continue to improve as they have been over the past week or so, then the more-creditworthy companies should discover that loans are easier to get, and carry a lower interest rate, to boot. As Money Morning has been reporting, the London Interbank Offered Rate (LIBOR) – a benchmark rate for short-term loans – has been dropping. Yesterday, LIBOR for three-month dollar loans fell for the sixth straight day, declining 0.36 percentage points to reach 4.06%.

The recent decline in LIBOR — which establishes lending costs for individuals and for businesses — reflects a growing trust in the financial sector after governments around the world have guaranteed billions of dollars worth in bank debt and have also unveiled plans under which they will buy stakes in weak and foundering banks.

“The general economy was weakening, and that weakening has taken a turn for the worse,” Robert DiClemente, an economist at Citigroup Inc. (NYSE:C), told The Associated Press. “And any company that was already facing more-challenging business conditions, when they’re confronted by tighter credit, it gives them one less degree of flexibility.”

LIBOR Lessons

The LIBOR decrease has helped ease some investor demand for U.S. Treasury bills – considered the ultimate in safe investments. The yield on the three-month T-bill surpassed 1.0% for the first time in nearly two weeks, rising to 1.12% yesterday from 0.82% late Friday.

The U.S. Treasury Department auctioned $25 billion in three-month bills at a discount grate of 1.25%, up from 0.50% last week, and another $26 billion in six-month bills at a discount rate of 1.80%, up from 1.10% last week, The AP reported. Those higher rates for short-term government debt suggest “continued healing in the credit markets,” Tony Crescenzi, an analyst with Miller Tabak & Co. LLC., wrote in a research note to clients yesterday.

As investment funds slowly take money out of safe assets, they are turning to assets that carry a bit more risk – presumably for a better return.

Indeed, Miller Tabak’s Crescenzi noted that yesterday’s mortgage-backed securities market signaled “increased risk taking.”

And the market for commercial paper — the unsecured debt that companies sell for short-term financing — continued to improve. Commercial paper rates were generally down 0.20 to 0.40 percentage points for key issuers tapping the market Monday, including American Express Co. (NYSE:AXP), General Electric Co. (NYSE:GE), HSBC Finance (ADR: HBC), AT&T Corp. (NYSE:T) and The Coca-Cola (NYSE:KO), Kevin Giddis, managing director of fixed income at Morgan Keegan & Co. Inc., told The AP.

Just a few weeks ago, even stronger companies like AT&T were having trouble selling paper for longer than overnight. Now, investors are starting to step in and buy paper with 30-day and 60-day maturities, Morgan Keegan’s Giddis said. On Oct. 27, the Federal Reserve is scheduled to start buying commercial paper from issuers that can’t find buyers in the market. 

Against this still-slightly-uncertain credit-market backdrop, companies are going out of their way to broadcast their financial strength – and ability to be financially flexible – to the capital markets.

For instance, engineering-and-construction giant The Shaw Group Inc. (NYSE:SGR) said it was able to amend its credit facility so it can use up to $200 million as collateral for letters of credit. Trucking company Werner Enterprises Inc. (NASDAQ:WERN) emphasized that it is a “debt-free company.” And U.S. toymakers Mattel Inc. (NYSE:MAT) and Hasbro Inc. (NYSE:HAS) both underscored they have little debt on their books and have plenty of cash available.

Even so, both Werner and Mattel conceded that they may feel the credit-crisis pinch – albeit indirectly – because so many of their suppliers and customers have not been able to obtain financing of their own.

Source: Although Bank-to-Bank Loan Rates Fall for the Sixth Straight Day, Only the Strong Will Survive

San Gold (SGR) reported a 1.8 metre intercept running 103 grams gold per tonne at the Hinge No. 4 zone on its Rice Lake project in Manitoba. San Gold ended the day down C$0.03 at C$0.90.

Lucara Diamond (LUC) and partner Motapa Diamonds (MTP) recovered a 23.4 carat, type IIA diamond in the initial stage of phase 2 bulk sampling at the Mothae project in Lesotho. Lucara ended the day down C$0.10 at C$0.40, while Motapa closed up C$0.085 at C$0.355.

Gold-Ore Resources added C$0.03 to close at C$0.23 after reporting that is Bjorkdal mine is Sweden produced 2,692 ounces of gold in September.

Great Panther Resources (GPR) posed record production of 444,686 ounces of silver equivalent from its operations in Mexico. Great Panther ended the day down C$0.045 at C$0.45.

The junior bourse is another step closer to its 2002 low with the sell side volume increasing as investors run for the exits. We will see what Wednesday trading has in store.

Source: Resource Stock Roundup Wednesday, October 8, 2008