This email we are going to talk a little about corruption, as it relates
In the class on indicators last May, I spent a little time outlining the
process of how government granted licenses capitalize into a tradable
privilege. Understanding this activity - rent seeking - is the basis of
an ability to forecast well. Indeed, the government creation of the
license, once allowed to capitalize, forms the very basis of the real
estate cycle that we study. Despite whatever Gann says, this is the
most important cycle to know about.
Keep in mind though, the following is not meant as an attempt to convert
you to any particular style of thinking, though you all know of my
opinion that the world would be a far better place if government raised
its revenue from resource rents instead of taxation on labour and
It is now believed that the EU is losing 50 billion Euros annually to
what is called 'Carousel' tax fraud. Organized criminal gangs and
terrorist networks are known to be financing themselves by shipping high
value items like mobile phones for example into an EU area not levying
Value Added Tax (VAT). Such goods are then however sold to you and me
with the VAT added but not then paid to the appropriate collecting
authorities. These organized networks can even then sometimes re-export
the goods through a chain of other linked corporations (hence the name
carousel) and reclaim the VAT that was never paid in the first place.
If government collected its revenue from its land and resource base,
instead of a tax like the VAT, such criminal activity could not occur.
Euros 50 billion annually to terrorist networks...
In the UK, the government is looking to award another casino
license. Rather conveniently, a Mr Philip Anschutz - a wealthy US
businessman, has recently taken on a lease of the London Millenium Dome
with an eye to turn it into a 'super-casino'. The government man in
charge of overseeing such developments ? Deputy PM Prescott. Prescott
was recently 'invited' to the private ranch of Mr Anshutz, in Colorado,
to "talk about the role the Dome could play in the 2012 London
Olympics". Prescott was also one time Minister for Town Planning, so
has quite a knowledge of the planning process controlled by government.
Handy really, since the super-casino is expected to add much value to
property in the surrounding area, much of which has been bought up by
Anschutz already it appears. Rent seeking bringing potential corruption
To Italy and Mr Berlusconi. Yet another Italian judge has once again
indicted the former PM on fraud charges. This time for buying film
rights offshore and then selling them through his own TV network (govt
granted) at inflated prices. This helped to reduce his media empire
profits and hence tax bill by 60 million euros says the judge. Well
he's just adding value to his license. Wouldn't you ? The Guardian
Weekly, July 14, reports the savings so made were 'earmarked' for his
children by his first marriage.
Remember, the community would only have to collect, yearly, the value of
the licenses created by government, to eradicate this behaviour.
It doesn't, so we can see how such behaviour develops to corrupt those
in government. And when the license owners themselves ARE the government...
Hence, when you follow EIS stuff, you are doing something especially
rare. Few in the world are presently teaching this style of
economics. Understand about government granted licenses / annual rental
values, the largest of which is land price, and you can see where such
community behaviour originates.
As to timing, real estate has shown in the past a very clear, average 18
year pattern of boom / bust. Since economic behaviour is still being
driven by the same rent seeking influences, it will repeat.
Gann then seemed to find a way of timing this exactly. Which brings me
to the date of July 17. For those that were there at the
May class, and had done Gann, recall that at morning tea I pulled you
aside and gave you a ten minute lesson on how the market tells you well
in advance which dates will be the most important / emotional for the
year. At this time I showed you that the SPI was clearly highlighting
July 17 as a major date for the year and that this would be a low.
(With associated volatility in world events and by definition, a high in
some other markets as the SPI reacts to these.) This is exactly what we
got. (65 days off the top for the SPI)
Rest assured that Gann discovered how you can know this before it
happens. Rest assured I won't be mass marketing this knowledge any time
Gann did not hide this knowledge in his books, but he makes you work for
it. This is as it should be. So the future therefore, will always be
profitable for those who have done the hard work. How can it be
otherwise ? This is the advantage of study and hard work to gain
knowledge. It is as Gann said it is.
Now we count off July 17 and should note that 90 degrees later is around
Oct 17. This will be important for a change of trend for most stock
We can do the same for the oil market. With such high prices, the
search is on to find more oil. (Though ultimately, nothing cures high
prices like high prices.) So oil companies, with their vastly improved
balance sheets and record profits are buying up exploration permits in
every part of the world possible. Cash-strapped governments are eager
to sell them the permits to do so; a government granted license. Noted
the Guardian newspaper, July 14 about this process: "The race for assets
has even included territories that were formerly shunned by the West,
such as Libya. The Libyan government has attracted better terms from
western firms than anyone had expected...it's absolutely staggering what
companies are forking out."
See, the license values are capitalizing. The formation of a bubble
here is certain and eventually companies will overbid for them. Hence
you have a cycle arising. i think the process with oil exploration
permits will time itself into the 18 year real estate cycle into 2009.
This is why I teach about government granted licenses and want you to
understand the process.
If you were following the Russian oil dramas with Yukos oil, Mikhail
Khodorkovsky and Putin, this again is just the rent seeking playing out.
The drama started with a few very well connected Russians grabbing the
oil permits Boris Yeltsin gave away, and has ended with another
redistribution this time back in favour of the Kremlin. Perhaps 30 to
50 billion was involved, serious money and proof that there is enough
wealth in the world to keep us all in the pink if enough of us wanted it
collected as revenue for government instead of allowing the wealth to