Agora Financial’s Rude Awakening

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Dubai, UAE

The Final word on the Cash or Not to Cash debate,

Striking while the iron is hot! Before the iron strikes you!

Toning down finance’s animalistic appeal and plenty more…

Joel Bowman, reporting from Dubai, UAE…

Sometimes the financial publishing business can be so overwhelmingly sexy that we need to tone things down a little. During such times, we try to imagine we are employed in a profession with a little less raw appeal… like a fireman, a navy pilot or a rock star.

You may recall last week when Dan Denning, editor of the Australian Daily Reckoning, boldly declared, “I know its crazy, but I’m advising my readers to liquidate all their positions and get into cash.”

The inevitable question that arose was, what’s better than cash?

Feeling a little overwhelmed with all the titillating discussion that ensued, I decided to write to Dan myself, under a relatively prudish guise…
 
Dano,

As far as the “Agora Live Tonight: Sold Out” show goes, I may only be playing a triangle at the back of the band, but I’ve heard the crowd singing your lyrics back to you in the emails they’ve tossed on stage. “Gold, Silver, Energy,” they chorus back in response to your “Better Than Cash?” query.
 
From the whiskey-swigging bluegrass contingent up the back we hear, “Guns, Ammo, Fallout Shelters!”
 
Then there are the currency crowdsurfers, singing out for a dollar hedge with a basket of other currencies – Yen, Pound, Loonie, NZD and AUD.
 
Those with a more fiscally conservative conscience (I think they came to see the Matchbox 20 show afterwards) are quietly pulling for a 50-50 split between gold and the buck… “win none, lose none…” they whisper, shyly.
 
You’ve read what your fellow Agora Financial band members have had to say.

Eric Fry on lead guitar seems to favor the Yen if things go awry in S&P-ville.

Byron King on the bass (who, it must be noted, actually WAS a navy pilot) is bullish oil over the long run and wonders if there are not some bargains to be had in the energy complex.

Dan Amoss on the Strategic Investment didgeridoo (sorry mate) advises pairing down positions, investing 25% freed-up capital in King Cash and, perhaps, another 25% into inverse [i.e. bearish] sector ETFs.

John Forde on the Fender (rhythm) wonders about looking around in your own backyard Down Under while the long wind down takes its course.

Chris Mayer on the, uh…mandolin (?) holds steadfast to long-term value positions, believing carefully selected companies with the right management can ride out the storm if bought at the right price.

Meanwhile, in the control tower, the executive record producers, Bill and Addison, are of the opinion that cash is a position anyway…and not necessarily a good one. (I think that means gold.)

 
I’d reckon if you poked around outside the crumbling walls of the Empire, there are plenty of contenders that are ready to fill the void…and companies that will be helping them do it. Maybe rather than going ex-US dollar, you might consider going ex-US altogether…?
 
Anyway, that’s just my 0.02c. The encore is up to you…

Read on for the final word on “To Cash or Not to Cash?”

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Agora Financial…Unplugged, Part III
Edited by Eric J. Fry

Dan Denning, editor of the Australian Daily Reckoning:

Friends, Agorans, contrarians…lend me your imagination.

Imagine you have been hired by a wealthy client to take him to the summit of some very high and technically challenging mountain he’s always wanted to climb. You’ve been paid top dollar. Your client is genial, equipped with all the best gear, and seems reasonably fit…for a 75-year old chain smoker from Ames, Iowa. He’s also a complete novice at what he’s about to attempt. But he has the money and you have the expertise, so you get acclimated at base camp and off you go.
 
Then, you notice a storm rolling in. It’s not right upon you. But you know the weather around the place. You know it will get worse. You know, in fact, that if you get caught in the storm, your client will probably die. You might die too, although you are younger and healthier. But your client…if he insists on hiking into the storm you know is coming…he may not make it.
 
At that point, isn’t it your job to be a good guide, and REALLY earn your pay by altering from the planned course when you conclude that’s what’s called for?
 
Strike while the iron is hot! Before the iron strikes you! Or, as my dad used to say, “The map is not the territory.” When the investment conditions have changed so much (if they have) isn’t it prudent to change direction?
 
Isn’t your job to tell him, “We might get lucky and make it. But the weather can change. It is unpredictable. But the odds are if we keep going, something very bad is going to happen. The probability of success is low and the magnitude of getting caught in the weather is…well…it’s as big as it gets.”
 
Anyway, before I belabor the metaphor, my point is that it’s not a betrayal of your relationship with your reader to say you think it’s time to do something radical that wasn’t part of the original plan. Most of the time you’d never have to say that. Markets go up. You buy and hold stocks for the long haul. Blah blah blah.
 
It’s the few times where something radical IS required that your reader really needs you. We give our readers radical ideas that are mostly bullis…because the stock market has mostly gone up for the last 20 years. It hasn’t required a radical departure from a conventional buy-and-hold strategy.
 
Even when those big ideas were bearish, as they were at Strategic Investments while I was there, there was still some bullish silver lining…something you could buy to hedge against the risk and calamity. It’s been this way for most of the ten years I’ve been doing this. All the good ideas have been stock tips. Now maybe the best idea is a “cash tip.”
 
Now, getting into cash IS a pretty radical idea for a stock-focused newsletter. And it certainly is not a market-neutral position. It’s a claim that in the bursting of a credit bubble and the deleveraging that ensues (fire sale selling) it is much better to be in cash. You’ll need that cash later.
 
You can’t take advantage of a firesale if you’re inside the warehouse when it burns down. You want to be outside the warehouse, with a pocket full of cash, and a manifest of all the assets you want to own when the smoke clears.
 
So yes…I’d make a list of energy stocks, stocks not correlated to the U.S. consumer, or balance sheets heavy on tangible assets and light on debt. I’d check it twice. And then I’d wait for this little rally to blow itself out and see what happens.
 
In the meantime, I’d turn my attention to a part of world where all the biggest growth in the real economy is going to be for the next twenty years. Places where corporate earnings won’t be driven by debt. That’s a great opportunity for the readers now.
 
It’s outside the dollar, in companies that serve all these new consumers in Asia with fresh lines of consumer credit or – egads! – actual savings in the bank! It’s really an American investor’s last best chance to reduce his home bias before the credit bubble fully trashes the stock market…and leads to Nanny State Finance under the next Clinton Administration.
 
Or I could be wrong and the collapse of the biggest bubble ever will have a negligible effect on U.S. stock values and corporate earnings. Or I could just be two years early. You can decide for yourselves.
 
Anyway, I know everyone is working really hard on good ideas. Just wanted to share my thought process for what it’s worth…and the belief that this is not just a fire drill this time…but a real inferno.

This really could be your last chance to get out of the dollar and dollar-denominated assets before it’s too late. Reckoning Day…Empire of Debt…Mobs…it’s been a steady progression. We shouldn’t be surprised we’re there. And we needn’t do anything irrational now that we are…but we should do what we can, whatever that is.
 
Byron King, editor of Outstanding Investments:

The quote below is from the great Richard Russell…
 
“OK, aside from an honest man, what’s the rarest thing in the world? It looks like it’s going to be energy. With the Chinese buying cars, and the Indians buying air conditioning, there won’t be enough energy available, not at today’s prices. The life-blood of the civilized world is energy. And XLE is a direct way of participating. The ETF has consolidated since June, and it turned bullish this month. I like XLE. I mean, if the energy business doesn’t do well, then what the heck will?”

Could not have said it better myself. Hey, I did say that. 
 
Dan Denning:

So you’re telling me not to jump?
 
Hmmm…I’d describe the last week as thoughtful anxiety evolving into nervy conviction.
 
We’ll see how it goes.

Joel’s Note: Indeed we will. But the larger question still remains: Why bother with rock and roll CDs when you can grab the Agora Financial Investment Symposium CD set? It’s packed full of investment ideas from the whole band and, unlike a rock and roll CD, this one is bound to MAKE you money. Click here for your copy.

Rude Endnote: As for your Dubai-based editor, our ribs are crushed under the weight of all the fan mail and, besides, we’re still learning the sheet music for our three triangle dings toward the end of the set.

Having said that, we’re inclined to agree with a selection of the readers that are looking outside the U.S., into emerging nations. Here in the UAE (a nation that, as a member of the GCC, have considerably lessened their holding of U.S. Dollars in favor of Esperanto Euros) things are  humming along nicely. But it’s not what’s in Dubai already that’s most impressive…it’s what isn’t. A cursory glean over a map of the area reveals a great many “(u/c)” land parcels, ie; Under Construction. In other words, there’s much growth to come.
 
The mass of earth being moved here is done by cheap labor from Indian, Pakistani and Bangladeshi workers. These blokes are working harder than one-armed brickies in Beirut…and they are doing it for pittance. We’ve heard the monthly wage for a day laborer is around 500-800 dirhams – about USD$200-300. Rather than build walls along their border, the Emirates are only too happy to send their immigrant workers up 95 stories of scaffolding to work on their towers. And while many of them send the little money they can spare back home, the buildings stay here. These monolithic structures are then outfitted by local firms and bought up by European companies lured here by huge tax breaks and other business incentives.
 
We read somewhere recently that only a small fraction of the U.A.E.’s wealth is generated by actual oil…the majority comes from tourism (mostly Europeans) and the service industry (mostly Asians) - financial and other.

The area is also a huge technology hotspot. In fact, we’re off to the Gitex Technology Week conference in a couple of hours. It’s the largest conference of its type in the region and attracts a multitude of tech companies, all showcasing their wares and hoping for a slice of this enormous market.

We’ll be back with more Rude news tomorrow. For now, it’s over to your 5-Minute Forecast.

Cheers,
Joel Bowman
Rude Awakening