Government doesn't innovate. There is no reason for it to do so and every reason not to. Bureaucrats are promoted not because they can trim their overhead, but because they increase it. The more projects you can garner, no matter how ill-conceived, and the more employees you have, no matter how extraneous or poorly-motivated, the more money you get from Congress.

Neither does the government have a profit motive. It has a status quo motive. Don’t upset any applecarts. Don’t try anything that would make you stand out. Administrate. What kind of words are “administer” and “administrate”? What kind of philosophy do they lead to?

The “standard” fee arrangement at most hedge funds is 2% of the assets they place at risk for you and 20% of any profits they make. Losses? That’s your problem, though new fees are typically not assessed until / unless you have surpassed the previous “high water mark” – that point at which your assets were at their highest paper value.

So give some hedge fund a million bucks and if they turn it into $1.2 million, they get 2% of $1.2 million and 20% of the $200,000 they made for you. Total fees: $20,000 + $40,000, or $60,000, leaving you with a profit of $140,000, or 14%. Not bad – when everything is sunshine and lollipops.

I have written about the coming likely shortage of cool, clean water for many nations (including some of those touted as “owners” of the coming century) here and in follow-on articles. I also recommended specific companies in those articles that I believe will benefit from these shortages.

I’ll go further and speculate that the next horrific war, and the one the United States would be wise not to meddle in, may well be between two superpowers, China and Russia. Here is the amount of Internal Renewable Water Resources (IRWR) that China has per capita: just 2,173 cubic meters IRWR per person. Russia, on the other hand, with 1/5th the population (and declining), has 30,001 cubic meters IRWR per person, nearly 15 times that of China.

Some may scoff at the question. "Of course they must decline," they say. After all, we know that it is "likely" that in 2011 Canadian energy royalty trusts will lose their special status as non-taxpaying entities which flow income directly to unit holders (with no revenue flowing to the provinces or nation in which they are located except that paid by the very few employees of the trust who reside in that province or nation.)

Whether you like the Canadian provinces’ and Canada’s national decision or not, you must admit the current structure does seem a bit unfair – the Canadian provinces and national government provide roads for these companies’ royalty-paying firms to drive on, schools for their kids, etc., but the only income the provinces or federals receive in return is the scant amount they receive from the personal income taxes of the few employees that work to flow the royalty income to the unit holders.

The title of this article is of course borrowed from the brilliant book of the same name written in 1841 by Charles Mackay. The book deals with 3 “delusions”: "National Delusions", "Peculiar Follies", and "Philosophical Delusions". While dealing with The Crusades, alchemy, witch-hunts and other follies, the parts that interest us most today are the economic bubbles he discussed -- in 1841 -- and the national delusions he chronicled.

Mackay devoted a chapter each to the Dutch tulip mania of the early seventeenth century, the South Sea Company bubble of 1711–1720, and the Mississippi Company bubble of 1719–1720.

I have previously discussed the investment merits of what the World Bank calls “the soundest banking system in the world” and the gold (and golden agriculture) that flows from Canada. Now I’ll review the black gold that, atop the foundation set by the previous sectors, may prove to be the most profitable of all.

If there is to be a retrenchment over time in the value of the US Dollar, as there has steadily been for the past 100 years, I believe commodity resources in general (mining, agriculture, energy, and precious metals) will benefit. As the USD declines in value, nations abundant in those commodity resources will retain the value of their currencies far better, thus producing profits when repatriated into US Dollars in addition to the profits that accrue to well-managed companies anywhere.

Amber Waves of Grain

Canada is one of the largest agricultural producers and exporters in the world. Blessed with rich soil, excellent growing conditions, and abundant water, Canada is – per capita – the biggest exporter of agricultural largesse in the world.

“BBDP” is a term I used in my first book. It stands for “Basic, Boring, Dull and Profitable.” And in investing for the long term, it forms the foundation of our investing pyramid. No fireworks. No "up 30% one week, down 25% the next", leaving you worse off than when you started.

The US economy – and stock market – has been filled with fireworks, not just in this most recent year but ever since the abolition of Glass-Steagall, the chicanery in dot-com IPOs, the artificial inflation in home prices thanks to Greenspan’s interest rate reductions to prevent the normal contraction in the economy after the dot-bomb went off, and the current and former administration’s decision to seek the guilty (Wall Street bankers and brokerages) and punish the innocent (American taxpayers.)

I believe natural gas will be America’s energy salvation. I’ve previously discussed my favorite natural gas exploration and production firms and my top natural gas (and oil) pipeline companies. But every portfolio needs diversification to mitigate risk and/or short-term under-performance in any one sector or industry. I’d like to find good solid income, if I can, in the food, other-than-natural-gas energy, and basic materials sectors.

A number of SA contributors believe, as I do, that a steadily-increasing stream of dividend income is a key component of total return. Many advisors suggest buying a good solid company that pays 2% -- but with the likelihood of increasing that dividend year after year. My variation on that is to find a good solid company that pays 8% -- and with the likelihood of increasing that dividend year after year. I provided a chart of the increasing payout for the past 12 years from one such company, OneOK (OKS), in the second of the two articles cited above. Let’s see if we can’t find others that might provide the same kind of steady growth in other sectors.

Authors Note: There is such a -- great! -- flood of information on SA I’ve found if I respond to comments and questions after 24 or at most 48 hours, people don’t go back and read responses and answers there. Better to address questions asked more than once in a new posting for all who are interested:

The subject of buying MLPs arouses strong emotions and elicits all sorts of anecdotal information that is then (often incorrectly) extrapolated from the specific to the general. I’d like to clear up some misconceptions about MLPs, taxes, and K1s, having discussed the issue with two CPA colleagues, and answer the question a number of readers asked as to why I selected the 7 MLPs I selected from among such a large universe.

This concludes my trilogy of articles discussing why natural gas & why now, which exploration firms I think offer the best opportunity, and, below, the pipeline, gathering, storage, and processing firms I believe are poised to profit most.

Most natural gas pipeline companies are organized as MLPs – Master Limited Partnerships. MLPs are a little like REITs -- Real Estate Investment Trusts -- since they don’t pay income taxes directly. Instead, income is allocated among all partners (that would be you and me as shareholders) in proportion to the number of shares we own. Typically, there will be a general partner, whose responsibility it is to actually run the business, and we shareholders are the limited partners.

(My apologies to those expecting my 2nd installment of recommended natural gas companies. It's 8 pm and I’ve just returned from a high Sierra camping trip so I won’t be able to post that article until the weekend. At that time I’ll cover the pipeline, storage and distribution firms. Let’s hope our timing is as good with those as with our recent call to buy the exploration and production companies. Until then...)

... a quick post based upon speaking recently to an investor group. In the Q&A that followed, many in the audience expressed concern that “there is no way to check out a broker before he gives you bad advice.”

I have made the point in previous articles that natural gas, oil and coal are like giant batteries that nature has provided. They are the ultimate form of stored “solar” energy.

To over-simplify for explanation of this perspective, if it were not for photosynthesis courtesy of the sun, plants could not grow and thrive and most species of animals could not live. If plants and animals had not lived and then died over the eons of pre-recorded time, giving up their water and leaving behind their carbon, there would be no fossil fuels. Centuries and millennia of compacting the remaining carbon in these life forms created these giant batteries for our use.

Natural gas will be America’s energy salvation.

If you think solar, biomass, wind, lithium ion-powered, ocean thermal, currents and tides, and even tried-and-true geothermal and hydroelectric will somehow in the aggregate equal natural gas as a share of energy production, read here and here.

I won’t bore readers with the number of times in the past few months I have noted the ways and means in which news is manipulated and numbers massaged by Wall Street and Washington D.C. Nor will I refer you via links. It’s all there in previous articles if you care to see it.

Most egregious among the manipulations have been housing numbers and retail sales numbers. For the past few months, Wall Street has been steadily selling their dogs to an unwitting public and, more recently, establishing their short positions.

In the partner article to this one, here, I noted,

Because the United States is one of the world’s most open societies with a vibrant and muckraking free press, most of our problems are known. This can overwhelm an investor at times, leading us to believe things are worse than they are.

You might think so, judging by the spate of articles, on Seeking Alpha and elsewhere, that advocate investment portfolios heavy on inflation defense at one end, deflation defense at the other, and emerging nations and basic commodities filling in between. We own many of these, as well, but I don’t understand analysts who have given up so easily on the US who now ask us to jump on some other bandwagon which I believe has less staying power – just because it’s an easier sell right now.

The engine that continues to eclipse all others in this world is still the combination of American entrepreneurs and American consumers.

Dr. Michael Crichton was best known as an author whose books sold over 150 million copies worldwide. He was also the only artist to ever chart #1 at the same time in television, as creator of ER; in film, with the adaptation of his novel Jurassic Park; and in book sales, with Disclosure.

He was a scientist by training, by which I mean he was both curious about the world around him and empirical in his observations about it. In a world where uninformed opinion, shouted at ever-higher decibel levels on hot media like TV and YouTube, seem to carry the day, I submit that curiosity and empiricism are under-rated; loudness and loutishness are over-rated.

(If you haven’t read Part I, for background you can see it here.)

If you believe there is no hope that honest investors can ever take back The Street, the best way to throw in the towel is to invest alongside the smarmy, arrogant – and very well-connected in Washington – big players in all facets of algorithmic trading.