Agora Financial’s Rude Awakening

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Melbourne, Australia

• The news on OPEC’s aversion to “worthless paper” dollars,
• Avoid the oil nuts – there’s money to be made in renewables,
• Sovereign wealth funds buy up big, the Dubai story thus far and where
  to next…

Dan Denning, from the Old Hat Factory in St. Kilda, Melbourne…

Well it finally happened. Behind closed doors, at a meeting closed to the
public, OPEC’s ministers discussed whether to price oil in a basket of
currencies instead of the late, great US dollar.

The conversation was supposed to be private. But audio and video from the
conference room were left on. The media had a chance to hear Saudi foreign
minister Saudi Al Faisal say, “Just indicating that we have charged finance
ministers with studying this issue…would mean a decision taken by OPEC
would have the opposite effect and the media would pick up on this point.”

Boy was he right. The media had a field day reporting about the feud between
OPEC’s largest producer (Saudi Arabia) and OPEC’s largest provocateurs (Hugo
Chavez of Venezuela and Mahmoud Adhmadinejad for Iran). This is better than
reality TV. And there’s a lot more at stake!

Al Faisal, according to the Reuters’ translation, said that making public
OPEC’s concerns about a weak dollar would have a negative affect. “And then
perhaps we would find that the dollar had collapsed, instead of us having
done something in the interest of our countries.”

“They get our oil and give us a worthless piece of paper,’” said Iranian
President Mahmoud Ahmadinejad in public. “The dollar has no economic value.”
And his sidekick Hugo Chavez, the lumbering socialist buffoon from Venezuela
who’s expertly monopolised his country’s oil wealth and turned it into a
political war chest, added that OPEC should, “set itself up as an active
geopolitical agent”.

Note to Chavez: OPEC has always been an active geopolitical agent, you moron.
Oil wealth has turned the nomadic tribes of the desert in Saudi Arabia into
accumulators of massive wealth and leverage over the global economy. Saudi
King Abdullah realizes that what is good for global growth is good for OPEC.
And that US$200 oil would not be good for global growth, thus, not good for
OPEC.

The King said in a speech that, “Oil is an energy that is about construction
and development and should not be turned into a tool of dispute and whimsy.”
Paper currencies are for whimsy. Tangible goods like oil are essential to the
global economy.

During its rise, OPEC’s influence over the oil price was even greater than
today. Today, OPEC controls 40% of world oil production and nearly 75% of oil
reserves. OPEC can’t single-handedly swing the price of oil higher or lower
by raising or lowering production. But its influence is still massive.

What will it do? The dollar’s decline poses a real problem. Sooner or later
OPEC will have to switch to a basket of currencies that stabilizes the oil
price in something other than a depreciating currency.

For now, the weak dollar is passing inflation on to all those currencies
linked with it. When the Fed cuts, the dollar peggers must cut too. It’s
unleashed a tide of rising prices that has the finance ministers of the G20
concerned. “Rising energy and food prices will remain an important source of
price pressures,” a draft of the G20’s statement is supposed to read.

[Joel's Note: Fortunately for dollar-holders, there’s a way you can escape
the political carnage in the oil sector…while still reaping the benefits of
soaring energy prices.

In an effort to lessen California’s dependence on foreign oil and to mitigate
their “carbon footprint,” the recently passed Senate Bill #107 decrees that,
by the year 2010, the state must derive 20% of its energy from renewable
sources. This means boomtown for a handful of tiny companies dwelling on the
fringe of the renewables sector as the big money piles in over the next
couple of years.

As always, resident geologist and Outstanding Investments editor, Byron King,
has had his ear to the ground, hunting investment opportunities.

This week he’ll email an exclusive list of readers the names of five
handpicked companies set to cash in as the boom in renewables takes off.

Due to both the tiny market-cap and mammoth profit potential of these
companies, the list of recipients will be strictly limited. But if you want
to ensure you are on that list, you’ll have to be nimble…applications close
at 5pm today, in less than 10 hours. Already a third of these reports are
spoken for, and they’re going quickly. For All The Details, Read On Below:

Byron King’s Energy & Scarcity Investor: Limited Geothermal Report

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The Shifting Sands of Globalizaion
By Chris Mayer

It wasn’t so long ago that nomads wandered the desert region that has become
the modern Dubai. The Bedouin fished and dove for pearls in the Gulf and
Persian traders built little courtyard houses of coral and gypsum. Today, a
vibrant, modern and rich city stands on what was once only a sea of sand.
Skyscrapers and deal-makers – not camels and nomads – dominate contemporary
Dubai. As such, this prosperous Arabian city has become a symbol of the new
economy that promises to shift the axis of commerce from West to East…and
that threatens to de-stabilize the dollar’s reign over the global monetary
system.

During my recent visit to Dubai, I was standing out in front of my hotel with
Joel Bowman, who co-edits the Rude Awakening and lives in Dubai. We were
waiting for a taxi. “I think this might be one,” I say. “Nah,” he says. “It’s
not a Lexus. Look for a Lexus.”

What is a luxury car in America is but a common taxi in Dubai. That’s some
small measure of the wealth of this place. But it hardly tells the whole
story. Dubai is becoming an important new global financial hub whose impact
investors are only just starting to comprehend. In the ever-changing
investment mosaic, Dubai offers clues as to how markets may shift next.

It’s hard to believe how rapidly this part of the world has changed. As we
whipped along new highways through the city, you could see construction
cranes all over the place. In just one little area, I counted over 25. Dubai
is only 1,500 square miles. It’s tiny. Yet there are over 5,000 construction
sites.

Then there are the buildings themselves. I saw the Burj Dubai tower, the
tallest building in the world. When finished, it could measure some 2,700
feet. That’s about twice the height of the Empire State Building. The thing
is just massive. It dwarfs the other nearby skyscrapers.

Then there is the Burj Al Arab, the self-proclaimed seven-star hotel with its
distinctive sail shape. I saw the famous palm-shaped manmade islands. The
Dubai Waterfront, for example, is a crescent-shaped man-made island twice the
size of Manhattan. Dubai is just one architectural marvel after another. One
writer described the city as “a goulash of Las Vegas, Zurich, Disney World,
Rodeo Drive and Miami Beach.”

More and more, though, this part of the world is going to be hard to ignore -
and not just for the audacity of its architecture. Dubai, for example, paid
$825 million for U.S. department store Barneys in June. It also recently
bought a 19% stake in the Nasdaq. Dubai International Capital (its main
shareholder is Dubai’s ruling family) most recently bought a $1.25 billion
stake in American hedge fund Och-Ziff Capital Management. This follows the
$1.5 billion purchase of the Madame Tussauds wax museum, the $1.2 billion
purchase of U.K. engineering firm Doncasters - and numerous other purchases
over the last six months.

It’s not just Dubai, but also Saudi Arabia, Qatar, Kuwait. They are buying up
banks, stock exchanges, energy companies, ports, airports and other
infrastructure. They also like real estate – picking up prime Manhattan
properties and beachfront property in South Africa. Middle Eastern countries
have spent more than $64 billion so far this year on investments abroad,
compared with only $30 billion the year before. They’ve got billions more to
spend.

A good part of that cash comes from the so-called sovereign wealth funds
(Essentially, investment pools run by the governments of oil-rich nations).
They are becoming major players in international finance. These great pools
of money are something new under the financial sun in that we have never seen
them attain such a massive scale.

Four of the eight largest funds are from the Gulf, with the Abu Dhabi
Investment Authority at the top of the charts, weighing in at $875 billion.
That’s three times the size of the big California pension fund, CalPERS. Now
the SWFs are starting to invest their cash.

There are some general themes to their buying, and what they buy and sell
could give us some insight into where market prices for some assets may be
going.

First, what are they selling? They no longer like the dollar. Nor are they
satisfied sitting on U.S. Treasuries. Kuwait, for example, severed its
currency’s tie to the dollar, thereby freeing it from having to buy any more
dollars. Its currency has strengthened since it cut the link. To fund all of
these purchases, the Middle Eastern wealth funds are trading in their
dollars. So it would seem the dollar has many sellers yet.

What are they buying? They like emerging markets. A Kuwaiti fund manager
recently said: “Why invest in 2%-growth economies when you can invest in 8%-
growth economies?” He’s shifting more money to India, China and Southeast
Asia. As for currencies, he prefers the South Korean won, Malaysian ringgit
and Indian rupee over the dollar, euro or pound sterling.

The allocation to the U.S. and Europe is still sizable, but lower than in the
past. Gulf countries have bought Manhattan real estate, for example. This is
reminiscent of the 1980s, when Japanese investors snapped up trophy
properties in America. Middle Eastern money is following that path globally -
with hotel deals in Shanghai, Beijing, Jakarta and Singapore, as well as
properties in Los Angeles, San Francisco, Miami and Chicago and resorts in
the Caribbean.

The Middle Eastern countries also have many needs of their own. Dubai, for
example, needs water and power, especially given the ambitious development
pipeline - some $300 billion in real estate over the next 10 years. Getting
water and power to those projects will be a challenge. Already, there are
strains; developers have delayed projects because of lagging connections to
power and water supplies.

According to the Dubai Electricity and Water Authority (DEWA), the increase
in demand for power and water rises by an average of 20% and 15%,
respectively, each year. There’s a clear need for infrastructure investment,
which is coming one way or another.

A recent report by Arab Petroleum Investments Corp. says the United Arab
Emirates will spend $61 billion boosting power and water supplies by 2011.
People are enterprising, however. They will not wait for the government.
While I was in Dubai, a front-page story reported that the private sector was
set to overtake the government as the main supplier of new water and
electricity supplies in the Gulf. According to forecasts by a business
intelligence group called MEED, private sector water and power supplies will,
for the first time, account for the majority of new deals in 2008.

MEED notes that calling on the private sector is a “cost-effective way to get
new infrastructure built.” Shades of what I heard in India - where large tech
companies like Infosys and Satyam maintain sprawling IT campuses with their
own water and power supplies. It’s a trend we’ll see more of around the
world.

As these booming economies of the East stretch their tentacles throughout the
global economy, a new generation of investment opportunity is emerging. But
this opportunity might be priced in dinar or euros, rather than U.S. dollars.

[Joel's Note: After hanging out with Chris and some Rude Awakening friends on
the rooftop of the Shangri-la hotel, the course of discussion headed toward
investment opportunities around the world. Chris spoke about Argentina and
his recent trip to India, highlighting many areas he is keeping a close eye
on for his many avid readers. I’d like to invite you to take a seat with
Chris and get a feel for some of his investment strategies. His Capital &
Crisis newsletter has one of the highest renewal rates in the industry and he
consistently delivers quality insights to his readers.

If you’d like to know more about Chris’ Capital and Crisis, take a quick
gander at this link. It has all the details you need to get started today.

Chris Mayer’s Capital & Crisis Newsletter – Cash Back Every Time You Trade

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Rude Endnote: On behalf of both Chris and I, I’d like to extend our sincere
thanks to our friends here in Dubai who kindly showed us some of the finer
points of Dubai that evening. Let’s do it again soon!

Cheers,

Joel Bowman
Rude Awakening