The Tycoon Report

Would You Let a PEZ Dispenser Manage Your Money?

Wednesday, August 8, 2007 | Dylan Jovine

WOULD I LET AN EMPTY PEZ DISPENSER ACTUALLY MANAGE MY MONEY?

That's the question I asked myself after watching both of last week's Presidential debates.

Now, I know it's a bit too early in the election season to be following a primary campaign for President.

In fact, most Presidential campaigns begin well into the fall (Sept/Oct), not as early as May and through the hot and boring summer months.

But this Presidential campaign holds a special appeal to me for two reasons.

The first is that I happen to believe that we're at one of those great pivotal points in American history, the kind of pivotal point that comes along only once in a generation.

And, to a self-described political junkie, that means one thing and one thing only: I'm jumping into the action as early as I possibly can to make the best decision I possibly can!

My second reason for following the debates this early in the season isn't quite as noble as my first; I'm in charge of setting the over/under for how many gaffes any given candidate will have during a debate.

(For example, this weekend, the over/under was "8" on how many "Popeye" moments John McCain was gonna have during Sunday's debate.  A free one-year membership to Fallen Angel Stocks for anybody who guesses the exact number.  Just leave your guess on the website where you can post a comment, and I'll respond directly.)

Now, I know many of you will be asking yourself why on Earth I'm writing about politics in The Tycoon Report, a financial newsletter?

Shouldn't I be staying as far away from politics as possible?  Especially given the fact that politics is one of those rare topics that people advise you NOT to talk about at the dinner table at the risk of potentially making somebody at the table uncomfortable (or very angry).

The good news is that I don't intend to use my space here to talk about party politics or even politicians (save for the occasional joke) at all in the coming months.  My goal here is to discuss the issues - specifically financial issues - and how they can impact our wallets both as investors and as Americans.

The bad news is that, no matter how hard I try to just focus on the issues (and not specific politicians or parties), some of the more paranoid among us may get the idea that I'm working on some sort of subversive campaign to push a particular candidate or party.

If this describes you (psst ... hey you, paranoid person, you know who you are), chances are you'll be angry at me at some point or another no matter what I say (unless, of course, I happen to agree with your viewpoint).

And that's totally cool.  Go ahead and be angry.  Just consider a couple of suggestions first ...

(A) Try to do it in the most intellectually honest way you can.  When you post comments on the website, try to use strong but well-reasoned arguments to articulate your position, and (B) seek a good therapist, because you probably have some "Mommy" issues that have helped develop that paranoia.

So before we begin, let's go over some ground rules for the financial look at our upcoming Presidential election:

1) Any Financial Issue that can Impact us as Americans is ON the Table: From global warming to tax policy to economic policy to immigration policy.  If it can affect our money, we can discuss it.

2) Partisan Politics is OFF the Table: One of the first rules of successful investing is to be able to transcend partisan politics to objectively discover the issues that impact your wallet.  Since I've always believed that Tycoon Report readers are "smarter than the average bear," we should have no problem as a community rising to a level that can help all readers of The Tycoon Report have a strong understanding of the issues that matter most.

3) You Choose the Issues: I don't want to do all the talking while you do all the listening.  I'd like you to participate in this debate with us by helping me come up with topics and debating the heck out of me if you think I'm wrong (or defending me if you think I'm right).

4) Let's Have Some Fun/No Hard Feelings: In my family, politics is something that we've always discussed at the dinner table - sometimes vehemently, sometimes angrily and sometimes happily.  But one rule we always have is to take the boxing gloves OFF as soon as the conversation is over.  This won't be fun if we can't follow that rule here.

Now let's dive right in and have some fun with the thorniest issue I could think of: the economic impact of alternative energy:


The Cost of the Alternative Energy “Gold Rush”

The rush for alternative sources of energy these days has had an unexpected and unlikely victim: food prices.  When you consider that many of the most popular fuel alternatives are based on commodities such as corn or sugar, it’s easy to see where trouble can brew.

Let’s take corn, for example.  The rush of investors to create alternative energy based largely on corn has had inflationary ripple effects throughout our entire system.

For example, most cows live off of feed based largely on corn.  When billions of investors are running in to convert corn into energy, the added demand increases the price of corn.  As a result, it becomes much more expensive for farmers to feed their cows.

When it becomes more expensive to feed their cows, farmers must pass this cost down to the consumer.  Not only does that affect the price you pay for a steak, but it also affects the price you pay for a gallon of milk.


The Inflation Man Cometh

When consumers are forced to pay more for basic food items such as milk, cheese and meat, it means the value of their dollar has decreased.  In other words, they are unable to purchase as many goods with the same dollar as they were before.  That is the very definition of inflation.

When that begins to happen en masse, two other things begin to happen.  The first is that millions of people in third world countries begin to starve (a very real and ugly side-effect of the alternative energy debate that isn’t being discussed by many people).

The second thing that happens when people are forced to pay more for their food is that they begin to ask their bosses for more money.  Since labor costs represent 2/3 of a company’s expenses, this upward spike in inflationary pressure can be devastating.

Now, many of the additives you put into your products are based on sugar and corn.  Suddenly, with the prices of these commodities on the rise, you’re forced to confront an ugly truth: Becoming energy independent can be a very expensive proposition, as we'll all be forced to eat the increases in cost ourselves.

WHAT DO YOU THINK ABOUT THE ECONOMIC IMPACT OF CORN-BASED ALTERNATIVE ENERGY?  IF THE PRICE OF FOOD DOUBLED OR EVEN TRIPLED, WOULD IT BE WORTH ACHIEVING ENERGY INDEPENDENCE?

Share your thoughts right here.

Until next week,






Dylan Jovine
Chief Investment Officer
The Tycoon Report