29 March 2011 – The Aleph Blog

Avoid Investment Scams and Bad Advice, Web Edition

Posted on 29 March 2011 by David Merkel

I have had two prior posts on this topic, and I can tell you that Bonanza Goldfields and GTX Corp both cratered though they still live, sort of.? Bioneutral has done poorly, but has not cratered.

So today, while I was reading an article at Time.com, the liberal magazine, I clicked on a link but the page was not fully loaded, and I was transferred to this page.? As scams through postal mail die, so they must appear on the web.

As for today’s folly, let read a part of the disclaimer:

Compensation

AmericanEnergyReport.com has been retained by an unrelated third party to perform promotional and advertising services intended to increase investor awareness of UnionTown Energy Inc. (UTOG). To date, AmericanEnergyReport.com has received five hundred thousand USD from an unrelated third party for performing these services. The services performed have included profiling the company on the AmericanEnergyReport.com website and issuing opinions concerning UTOG in newsletters and press releases. In addition, AmericanEnergyReport.com expects to receive an additional two million USD cash in future compensation for the continuation of the marketing program for an additional 3 months and to cover marketing vendors to pay for the costs of creating and distributing this report online in an effort to build market awareness. AmericanEnergyReport.com will disclose any future compensation. Anyone viewing the AmericanEnergyReport.com website or its newsletters and press releases should assume the hiring party or affiliates of the hiring party own shares of UTOG, which they plan to liquidate. Further, it must be understood that the liquidation of those shares may or may not negatively impact the share price. AmericanEnergyReport.com has received this amount as a production budget for advertising efforts and will retain amounts over and above the cost of production, copywriting services, mailing and other distribution expenses as a fee for our services. As such, our opinion is neither unbiased nor independent, and you should consider that when evaluating our statements regarding UTOG.

Since AmericanEnergyReport.com receives compensation from, and its owners, operators and affiliates may hold stock in, the profiled companies, there is an inherent conflict of interest in AmericanEnergyReport.com statements and opinions and such statements and opinions cannot be considered independent. AmericanEnergyReport.com and its owners, operators and affiliates may benefit from any increase in the share prices of the profiled companies. AmericanEnergyReport.com services are often paid for using free-trading shares. AmericanEnergyReport.com and/or its owners, operators and affiliates may be selling shares of stock at the same time the profile (or other information) is being disseminated to potential investors; AmericanEnergyReport.com will not advise when it or its affiliates decide to sell. Investors must make all investment decisions based on their own judgment of the market and the particular securities.

So, the writers get paid a lot, and may be paid? in the stock of those they write about?? No way they have independent opinions, and no wonder the type is so tiny and at the far bottom of the page.

Much as I like the prospects for oil, I do not believe that “Oil prices can only go up!”? That’s the language of fools.? In almost every economic environment, there can be significant setbacks to? a long-term trend, or even reversals.

The advertising appeals to the naive view that because other companies have reach share prices in the 30s, so might this stock. One of those comparable companies in that group is Northern Oil & Gas (NOG), of which my friend John Hempton is skeptical.

Now, I am not going to do a complete teardown of UnionTown Energy Inc.? At present, I am busy, and I know that companies that seek? paid analysts are usually crooked.? Why?? Simple.? Small companies with something good going keep it quiet, so that management can buy more of the company.? Unless they need more capital to build up plant and equipment, they don’t need to seek coverage.? Those that seek paid analysts to sing their praises are seeking for strength to sell into.

That’s how simple it is, and I record the price of UnionTown here: $1.55.? Also please note that the advertising campaign has run out and the price is now falling.? Caveat emptor.

Compensation
AmericanEnergyReport.com has been retained by an unrelated third party to perform promotional and advertising services intended to increase investor awareness of UnionTown Energy Inc. (UTOG). To date, AmericanEnergyReport.com has received five hundred thousand USD from an unrelated third party for performing these services. The services performed have included profiling the company on the AmericanEnergyReport.com website and issuing opinions concerning UTOG in newsletters and press releases. In addition, AmericanEnergyReport.com expects to receive an additional two million USD cash in future compensation for the continuation of the marketing program for an additional 3 months and to cover marketing vendors to pay for the costs of creating and distributing this report online in an effort to build market awareness. AmericanEnergyReport.com will disclose any future compensation. Anyone viewing the AmericanEnergyReport.com website or its newsletters and press releases should assume the hiring party or affiliates of the hiring party own shares of UTOG, which they plan to liquidate. Further, it must be understood that the liquidation of those shares may or may not negatively impact the share price. AmericanEnergyReport.com has received this amount as a production budget for advertising efforts and will retain amounts over and above the cost of production, copywriting services, mailing and other distribution expenses as a fee for our services. As such, our opinion is neither unbiased nor independent, and you should consider that when evaluating our statements regarding UTOG.

Since AmericanEnergyReport.com receives compensation from, and its owners, operators and affiliates may hold stock in, the profiled companies, there is an inherent conflict of interest in AmericanEnergyReport.com statements and opinions and such statements and opinions cannot be considered independent. AmericanEnergyReport.com and its owners, operators and affiliates may benefit from any increase in the share prices of the profiled companies. AmericanEnergyReport.com services are often paid for using free-trading shares. AmericanEnergyReport.com and/or its owners, operators and affiliates may be selling shares of stock at the same time the profile (or other information) is being disseminated to potential investors; AmericanEnergyReport.com will not advise when it or its affiliates decide to sell. Investors must make all investment decisions based on their own judgment of the market and the particular securities.

Limits: Models, Governments, and Central Banks

Posted on 29 March 2011 by David Merkel

Imagine for a moment that the US Government decided to end all taxation in order to “stimulate” the economy. “Wait,” you might say, “The deficit is bad enough today, how can we let it get any worse?”? A US Treasury Department spokesman says, “Don’t worry.? As the? government, our commercial paper financing captive subsidiary [the Fed] can issue overnight CP at zero percent infinitely/indefinitely.”

But after a little while of doing this, printing money to cover deficits, interest rates rise enough such that a broad coalition of those that need to borrow complain loud enough that the policies get reduced or reversed.? A modern Paul Volcker shows up, blows cigar smoke in the faces of Senators, and refuses to fund the US Government through loose monetary policy.

But the Government is still determined to run huge deficits, and calls upon the Treasury to float US dollar-denominated debt. The market, unused to such large amounts of debt, steepens the yield curve, rapidly, as short rates fall because excess printing of money is over.

Now, people might be grateful that their taxes are gone, as well as the need to be an amateur accountant each April, but that does not mean that they would want to lend to the US Government, so long as they run the place in such a harebrained way.

Eventually, growth in interest payments in dollars would exceed GDP growth, leading lenders to believe that they will never be paid back.? At that point, a lenders strike would ensue, and rates would rise dramatically.? Private borrowers, who pay more than the government to borrow, would scream, and bring political pressure to bear on the government to curtail its borrowing, which crowds out private borrowers.

At that point, the government would have reached its rope limit.? Remember, you can’t get something for nothing — not even governments.? There is always a cost, even if forced onto third parties via monetary inflation, or crowding out in the credit markets, even if those costs appear with significant time delays.

We would be back to my triad of Default, Inflation, Higher Taxes ? Choose One.? There are limits to everything on this side of Heaven.? Governments are not omnipotent in regulating economies; indeed, their track record is pretty dim, as is the record of fiat currencies as providing a stable unit of account.

So, as we possibly draw closer to the end of superloose FOMC policy, and with no hint of any real budgetary normalcy in sight, be aware that we are in uncharted waters.? Beware of listening to what mere theoreticians say should happen based on their models.? Their models have never plied their trade in the rough waters we are currently in.

Far better to read This Time Is Different or curl up with your favorite selection of economic history books.? You might get some clues as to what may come, or you might not, but your odds will be better than listening to the mere theoreticians.? The world and national economies at their worst are always more volatile than what the models will say, and governments prove weak when matched against the folly of their failed policies.