10-27-09 Lazy Boy

10-27-2009 TUESDAY AFTER LUNCH MONEY MEMO
By the Financial Foghorn
ROAD TESTING THE ANDERSON XR-1
"Rise early; work hard; strike oil." John Paul Getty
Perhaps you saw this news story: Man Pleads To La-Z-Boy DWI
"October 21, 2009: Dennis Anderson, 62, has pled guilty to driving a motorized
La-Z-Boy chair under the influence. Mr. Anderson's chair vehicle is powered by a
Briggs & Stratton lawnmower engine, and has a built-in cup holder, and
headlights. It also displayed two National Hot Rod Association (NHRA) decals.
According to a Proctor, Minnesota Police report, Mr. Anderson blew a .29 blood
alcohol level, more than three times the legal limit. But they probably wouldn't
have stopped him just for driving an illegal banquette. No, the Police were able to
apprehend Dennis because he was found unconscious in his chair lounger after he
rammed a parked car at 2 AM in the morning.
Police impounded the chair for lack of registration, seat belts, and other vehicular
transgressions, and announced that it would be sold at auction."
http://www.thesmokinggun.com/archive/years/2009/1022091lazboy1.html?link=rs
sfeed
CREATING THE XR-1
Wouldn't you like to have been
in the living room to hear the
conversation that led to the
building of the nicknamed
"Anderson XR-1"?
One spring cleaning day, Mrs.
Anderson said, "Damn it Denny,
get off that La-Z-Boy. I swear,
the only way you'd move your
butt to help clean this place is if
that f**king chair had a motor in
it!"
"Hmmm..." Thought Dennis.
FF ROAD TEST
But once the motorized rumble seat had been built, and the news cycle stirred, I
recognized this as an exciting dry-land opportunity for the Financial Foghorn. At
unimagined expense your author flew to Minnesota, and road tested the XR-1.
GENERAL MODEL SPECS:
Body Style: No door, "Sport" version. Factory air conditioning - air from Denny
Anderson's factory/garage included.
Drive Wheels: Skate board wheels all around, driven from rear.
Seating: 1 front; 0 rear; lap dancing perhaps optional.
Engine: Briggs & Stratton 830 cc lawnmower engine. 30 gross horsepower, with
full pressure lubrication, a dynamically balanced crankshaft, and an AVS antivibration system. Briggs and Stratton literature says: "Your B&S engine allows
you to be king of your lawn, and master of your sod... Sit back, relax and enjoy
your B&S powered throne." [I am not making that up.]
http://www.briggsandstratton.com/engine_power/engine_category.aspx?aid=2]
Predicted Reliability: Better than
Expected. (Expectations were nil.)
Fuel Economy: With electronic fuel
mgmt, say, oh...2000 miles per gallon.
Owner Satisfaction: Owner in jail.
Probably not very satisfied.
Acceleration: Meaningless...but as
long as you're not in a hurry, is OK.
Predicted Depreciation: Depends on
outcome of police auction.
Handling: Brick-like. Steering around
parked obstacles good...if driver sober.
Accident Avoidance: Problematical due to absence of brake pedal, and
apparently...brakes.
Owner Costs: Low... if driven only at
night. Auto insurance probably not
available, and would be silly anyway.
Crash Protection with Airbag: Zero.
Helmet & heavy woolens suggested.
Interior comforts: No comforts,
except cup holder, detected.
SUMMARY: This fun-to-drive La-Z-Boy model would inspire beer cheers in any
garage. Assumed to be the 2009 model, the Anderson XR-1 sports an effete 810 cc
(13.5 cubic inches) Briggs & Stratton twin. Creature comforts, aside from the
Budweiser-tested cup holder, are "restrained."
Top speed for the XR-1 has not been determined. The lack of speedometer
inhibited this test, and local vehicles in the Proctor, Minnesota area refused to
engage the author in a contest of speed while police were following my road test.
"You gotta be freaking kidding," said one worried, local driver.
Handling is ineffectual yet puzzling. The ride - with the seat cushion permanently
removed - can only be described as Conestoga-like. Reverse gear has apparently
been omitted in the Lumbago Gonzomatic transmission.
The interior should be considered Precambrian. The lack of a frame, doors,
windows, windshield, or roof accounted for the persistent and omnipresent road
noise during testing. On some positive notes, the lack of a dashboard means there
aren't really any gauges to worry about, or even look at. Oil pressure temperature
can not be a concern here. Since the sporty XR-1 lacks a back seat, or bumpers, or
any of those other clumsy automotive appurtenances that add weight, and sound
proofing and safety, gas mileage is spectacular. Did I mention the armrests?
POWERING THE XR-1
And what fuel propels Mr. Anderson down the highway and into parked cars?
There's no nuclear power plant beneath his wings, no lumps of coal, no solar
panels powering Mr. Anderson. For that matter, what liquid fuel sends all cars,
trucks, planes and trains barreling across our fair land? (Ok, the barrel pun was a
hint.) The answer, my friends, is blowing in the wind/ smog, and it's called oil.
In the US, our oil price, measured by the West Texas Intermediate Crude ($WTIC)
contract on the NYMEX, is now trading near $80a bbl. On Aug. 14, 2009, the
International Energy Agency (IEA) released a report showing that production
declined 6.7% a year at oilfields that make up 75 percent of world supply. That
depletion rate is double what it was in 2007. The IEA concluded that for the first
time in history supply, not demand, is going to drive prices.
In other words, though demand has dropped dramatically due to the global
economic collapse, the oil industry is struggling to meet even the reduced demand,
which is why prices have risen so rapidly.
And how has America responded to information from the IEA and from such
groups as the Association for the Study of Peak Oil (ASPO) and Matthew
Simmons (http://www.simmonsco-intl.com)? Well, let's say the Mad Max future
hasn't been totally averted just yet. Our oil usage remains close to 20 million
barrels a day. In the following chart, notice that 95% of transportation demand is
supplied by petroleum.
(From http://www.eia.doe.gov/emeu/aer/pecss_diagram.html)
If one were to think about this situation intelligently, one would begin researching
the oil market for suitable investment opportunities. And I have...
To start... the increase in oil has far exceeded a proportionate rise in natural gas
prices. Nat Gas guys keep finding more and more gas in the shale fields in the US,
and until that slows, Nat Gas prices won't recover any time soon.
I would also hold back on the individual tanker and oil service companies for the
moment until the economy stabilizes. (That's a nice way of saying I want to see
which companies survive.) Also, I learned years ago that Royalty Trusts are all
just depleting assets on their way to an ignominious end, so I avoid them.
Oil is the largest commodity sector, and since we are midgets playing on a field
with monster institutions, I'd look to ETFs, closed end funds, and partnerships for
protection. The safety Snuggie play within the oil sector would be the Oil ETF
(XLE) which includes most of the majors along with some oil service companies.
I'm more fond of the Energy and Growth Fund (FEN) a closed end mutual fund
with 40 or so pipelines in it, with good long term contracts, yielding over 6%.
Oil prices may have reached an interim high, so I'd emphasize ideas with good
dividends at this point, and be prepared to dollar cost average.
MASTER LIMITED PARTNERSHIPS
I want MLPs where the stated annual
income clearly exceeds the payout to
investors. A few of these would be:
Plains All American LP (PAA), yields 7%
at the current price of $49 and change.
Sunoco Log LP (SXL), yields 6% at the
current price of $59 plus.
DCP Midstream LP (DPM), sells for $26,
and yields over 8%.
There's also Alliance Resource Partners,
(ARLP) a coal outfit for old school
investors, selling for $38, yielding 7%.
BIG OIL
I'd only look at a couple of the big oil players, remembering that most of them are
selling more oil than they're discovering, thus are "liquidating" assets (pun
unavoidable).
Royal Dutch Shell (RDS-B) sells for $60 and yields 5%.
British Petroleum (BP) sells $55, yielding 6%.
CANROYS
Then there are the Canadian Royalty Companies, known as CanRoys, which are
the Canadian equivalent of MLPs, but there are significant tax changes proposed
for these by 2011; consult your local Canadian tax authority. Again, annual
income should exceed payout. The following are priced in US dollars.
Enerplus Resource Fund (ERF) sells for $23 and yields 8% at that price.
Harvest Energy Trust (HTE) sells for $9 a share and yields 6%.
Penn West Energy Trust (PWE) sells for about $17 and yields 9%.
Whatever you do, don't buy less than 5 different outfits in the this oil patch.
And don't build a lounge chair with your profits, if any.
FF does not own a motorized lounge chair, or shares of La-Z-Boy (LZB), or Briggs
& Stratton (BGG). He currently owns only FEN and PWE of the companies or
funds named. As always, DYO Due Diligence.
Michael McGowan,
The Financial Foghorn, and author of "Financial Foghorn's Guide to Gold-Get Rich, Get Happy, and Get to Heaven¨ with Monetary Metals."
www.FinancialFoghorn.com
© 2006-2012 Michael McGowan