Agora Financial’s Rude Awakening

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Ouzilly, France

• What to do with your money now? Back to the original blueprint,
• Ponying up pesos for a property on the pampas,
• Oil vs. cheap chicken: a tale of need over want, and plenty more…

Joel Bowman, from the Arabian Gulf…

Fans of our long-running sister publication, the Daily Reckoning, will be
well familiar with the idea that resonates throughout the following column.
In fact, Bill Bonner, founder and author of said newsletter, regularly refers
to his audience as “long-suffering readers” such is the extent to which this
relatively straightforward idea is reiterated.

But, as they say, a good message bares repeating…and long gold, short
stocks is a very good idea…for the long term. With every incremental rise
in the value of gold, and each shaky slip in the equity markets, the long
gold, short stocks message garners a slightly larger, slightly more devoted
fan base.

Compared to the stock market, much of which is built on the dubious, though
frenzied credit expansion Greenspan embarked on after the tech bubble, the
ancient yellow relic seems a veritable pillar of prudence. Even the
mainstream press seem to have caught a whiff of gold’s bullish
tendencies…or, rather, the dollars effluvial stench. No wonder the dumb
money has been piling in to the dusty specimen of late, eying her as a viable
investment vehicle. 

But new crowds can bring new hassles. With so much “dumb” money piling into
to the new trade du jour, it’s little wonder that gold’s ride of late has
been a tad bumpy. One day she’s a trader’s best friend, the next she’s run
off with his best mate.

A shade of ignorance is usually accompanied by a surplus of emotion…and the
mob trader tends to bring both to the table in plentiful supply. By the time
this hit-and-run trend-seeker has schlepped the morning’s headlines to his
broker, the cool kids have long departed, embarking on a new and glorious
investment fashion.

That leaves only the mainstays, the stalwarts, the true gold bugs to endure
the vicious volatility these fellows leave in their wake. The more active,
thrill-seeking type will employ various put and call options to whittle away
the capital of his unsuspecting guests. Those who have seen and heard all
this excitement before are content to view the spectacle from afar, nibbling
on the dips and quietly squirreling away his stash.

For these learned souls, there is only one way the metal can eventually
go…as long as everything else keeps going the only way it knows how. For a
brief refresher course on the fundamentals behind the trade of the decade,
read on below… 

— Outstanding Investments Hidden Gold Play —

From Hulbert’s #1 Ranked Advisory Letter of the Last 5 Years…

A Hidden Way to Buy Gold…for Less Than a Penny Per Ounce

Even if $800 Gold hits $2,000 by the end of 2008… here’s a hidden way you
can get in for less than one cent per ounce…Read On Here.

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Trade of the Decade
By Bill Bonner

What to do with your money now?

You are probably rolling your eyes, aren’t you, dear reader? You imagine that
we are going to harp again on our “Trade of the Decade.”

Well, you’re right. Long gold, short stocks - that’s the basic position.
Stocks are going down because we’re on the downside of the credit expansion.
Gold is going up because people in charge of paper currencies are determined
to print more of them. We wish we could give you more specifics, but we don’t
have them; no one does.

The United States Federal Reserve is pumping as hard as it can in order to
save the stock market and the economy. Our guess is that the Fed’s frantic
rate cutes won’t save stocks…but will do wonders for gold.

But there is more under heaven than is contained in our Trade of the Decade.
More opportunities for investors, that is. There is not much subprime debt in
Argentina’s financial industry, for example. In fact, there’s not much prime
debt either. Or credit card debt. Or home equity debt. Or corporate debt. Or
any kind of debt.

Argentina was protected from debt by its own recklessness. Want to buy
property on the pampas? You will have to pony up in cash. Neither consumers
nor businesses have much debt in Argentina because no one would lend them
money. Adjustable-rate mortgages? You’ll be lucky to get a mortgage of any
sort.

Nor do the emerging countries have huge trade deficits - they couldn’t afford
them. Instead, they tend to be on a pay-as-you-go system of international
finance. And now, many are building up large stockpiles of hundreds of
billions of dollars. By contrast, the United States of America has a paltry
sum socked away in foreign currency reserves… and practically none of it in
the currencies of emerging markets. Not surprisingly, most emerging markets,
including former and present basket cases, such as Argentina and Iraq, have
watched their currencies rise against the greenback over the last two years.

Many emerging markets are major exporters of raw materials…and food
products. Often, they are the world’s low cost producers. In a worldwide
downturn, demand for oil may go down…but would demand for cheap chicken?
Nor are emerging countries generally burdened by high social and
environmental costs. They’ve been too poor to afford expensive public pension
and health care systems.

As a consequence of all these things, if there is a broad slump, these
emerging markets - especially those in Latin America - are likely to come
through with the least damage, says our Buenos Aires colleague, Horacio
Pozzo.

Another buy might be Japan. The land of the rising sun seems to rest in
perpetual darkness. The sun never climbs above the horizon. The slump has
been going on for so long that Japanese investors shun their own stock
market. Foreign investors, too, have given up.

But not me! Many Japanese companies are selling below book value… and some
below the value of their cash. Of course, in the interest of full disclosure,
I figured Japan was a buy a year ago too - when Japanese stocks were 20%
higher. Now, I like them even more…especially in relation to U.S. stocks.

Now, everyone accepts the idea of a slowdown in the U.S… even with falling
rates from the Fed. What they are all asking is: how bad will it be?

The force of a correction is usually equal and opposite to the deception that
precedes it. The last five years have seen the most lavish dissembling the
planet has ever seen. The Greatest Boom Ever was a complete fraud…and it
was accompanied by more extravagant delusions than a presidential election.
Millions of people apparently took out mortgages never intending to pay them
off. Sophisticated investors believed these bad loans could be made good by
splicing and dicing them. Economists believed you could get rich by spending
more money…or by printing more! Whole populations thought they could live
on the savings of others. And the world’s imperial power thought it could
finance its military campaigns by borrowing from its rivals.

We blink…and wonder what kind of correction could possibly equal such
breathtaking claptrap.

A couple of years ago, we saw the world evolving in five key ways. We called
them the 5 Big E’s. This morning, we wonder how they held up.

At the top of the list was Energy. We saw it getting more expensive. Partly
because the world was using more of it. And partly because the currency in
which it was calibrated, the dollar, was increasing faster than oil
production. In the last two years, oil has shot up to $100. All right so far.

Next up was the Exodus of money and power from West to East. Has anything
happened in the last two years to slow it down? Nope. Asians have more market
share than ever… and more of the Westerners’ money. A global recession
might slow down the process, but we see nothing that will stop it.

The Economic cycle also seemed to be bearing down on the West when we wrote
two years ago. We were a little ahead of ourselves, or so it appeared at the
time. Stocks kept rising, at least in dollar terms. But now even the economic
cycle seems to have turned down. George Soros says we have reached the end of
a 60-year credit expansion. Well…maybe a 25-year credit expansion. Either
way, the tide has turned. Liquidity is ebbing out. And the assets that ride
on that tide are going down.

What else? Ah…the Experimental money. Since 1971, the world has toyed with
a money system that never, ever worked before. Never before had paper money,
not backed by gold, lasted for very long. But for the last 25 years, it
looked as though maybe, just maybe, this time was different. Then again,
maybe not. More on that below.

And finally, the declining Anglo-Saxon Empire. Yes, dear reader…if you have
to borrow from your competitors to pay for it, your empire won’t last very
long. The United States Empire began in the late 19th century, when America
began throwing its weight around in the Philippines and Latin America. The
Empire probably hit its peak in the Clinton years…after its last major
rival, the Soviet Union, threw in the towel…and the U.S. stock market rose
11-fold in 17 years.

Then, along came George W. Bush, just at the right time with just the right
program. Empires don’t last forever. So every great empire needs to find a
way to ruin itself. Bush was the man for the job – with huge new spending
projects…including a war in Iraq that pinned down the U.S. military, while
Congress and the public squandered its assets.

Yes, stocks will eventually bounce back. They always do. But unless there is
some remarkable renaissance - probably marked by bankruptcy, revolution and
civil war, like the period in Rome preceding the rise of Augustus – the glory
days of the empire are over. It has peaked out…and so has the empire’s money.
So to answer our original question, what to do with your money now?, we offer
the following tired advice: long gold, short stocks.

— Hidden Californian Energy Play to Break all the Rules —

A California Energy Site So Secret, You Can’t Even See it Without a Top-Level
U.S. Navy Clearance…

But a former Navy ‘insider’ is now ready to disclose the names of five
’secret’ energy companies that could make you $372,340…

The Navy has already collected $194 million from this discovery.

And CNNMoney.com reports that ‘Investments in [this 'secret' energy sector]
jumped nearly four-fold over the last two years, to about $100 million last
year… Because it’s [still] so small, there’s large growth potential
here…’ Read The Full Report Here.

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[Rude Endnote: As the presidential candidates on both sides of the equation
jostle for last minute positions, we lament the fact that the one fellow who
seemed to have any sense in the race will not make it through to the blue-
ribbon ballot. If you haven’t heard much about Dr. Ron Paul, perhaps his
thoughts on gold might give a sense of the opportunity squandered by ignoring
him.

Sigh…

Cheers,

Joel Bowman
Rude Awakening

aussiejoel@the-rude-awakening.com

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