Agora Financial’s Rude Awakening

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Baltimore, Maryland

• Citi begs for more bucks – a sign of a healthy sector? Hmmm…
• Inconvenient facts for the blind investor (and how not be one of them),
• One all-weather favorite for you to stash some cash in and much more…

Eric Fry, reporting from Laguna Beach, California…

Almost no one can buy a house these days, but almost anyone can buy the shares of a company that is trying to sell the houses that no one can buy. And that’s about all you need to know to understand the recent “recovery” in the financial markets.

Hope and happy stories are triumphing over reason and hard data. During the last 48 hours alone, we have learned that consumer confidence is slumping, home prices are plummeting and that struggling financial companies like Citigroup remain desperate for cash.

But very few investors seem to worry about such inconvenient facts. After all, a share of Citigroup only costs about $25. That’s gotta be cheap, right? Wasn’t the stock above $55 a share one year ago? Yes, it was. And $25 is certainly cheaper than $55. But the share prices of struggling finance companies have a nasty tendency to become much cheaper than anyone could have imagined.

Citigroup continues to clamber desperately for fresh capital. Last night, this struggling financial titan announced that it would sell $3 billion worth of new shares. Apparently, the previous $27 billion of capital injections did not quite scratch the itch.

If, in fact, “the worst is over” for the nation’s financial crisis, why do so many signs of extreme distress persist? Why does Citigroup sell $3 billion worth of new common stock less than one month after issuing $6 billion of new preferred stock? Why do home prices continue plummeting? Why do credit cards delinquencies and defaults continue accelerating to the upside?

We do not have the answers to these perplexing questions, dear investor. But we do have one related thought that we’d like to share: Maybe the worst is NOT over. Maybe the worst is still stretching over on the sidelines - just getting warmed up. Maybe the financial sector’s woes are far from over. Whatever the case, some pockets of the economy might manage to prosper amidst the carnage. One of our favorite all-weather investment candidates would be the water sector.

We suspect the water sector might perform very well, even if Citigroup shares do not. Chris Hancock, editor of Free Market Investor, provides a few additional insights in the column below…

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If You Like Oil, You’ll Love Water
By Chris Hancock

“Oil and groundwater share many characteristics. If you pump them from the ground and deliver them to people that need them, you create wealth. And if you don’t pump them, someone else might drain what lies under your land.”
– T. Boone Pickens

We were intrigued to read this morning that T. Boone Pickens, the infamous Texas wildcatter, and his Mesa Group are working to build the world’s largest wind energy production facility on the western Texas plains.

The energy derived from the project would go to ERCOT, or the Electric Reliability Council of Texas, which, according to its Web site, “operates the electric grid and manages the deregulated market for 75% of the state.”

The alternative energy project will complement Mesa’s goal to sell groundwater to major municipalities throughout the Lone Star State.

So what does T. Boone Pickens have to do with Free Market Investor? We’ve been watching the world’s pressing need for fresh water. Apparently, so is he. And he expects to profit handsomely from it, just like us:

“Mesa Water was formed in 1999 by a group of over 100 landowners, led by Boone Pickens, to find a market for surplus groundwater contained in the Ogallala Aquifer under the far northeastern Texas Panhandle. Today, Mesa Water is prepared to sell 320,000 acre-feet of aquifer water per year to regions that desperately need it.”

And windmills are one great way to pump that water to the surface.The world’s immediate need for fresh water remains paramount. In China, for example, two out of every three major cities have less water than they need. Cities in northeast China have roughly five-seven years left before they run completely dry.

Westerners, however, take water for granted. We simply turn on the tap and it flows. But that’s certainly not the case the world over. And from they way things are looking, that may not be the case here much longer. Lakes around the U.S. are running dry. In the West, we see this happening at Lake Mead. In the East, it’s Lake Lanier.

While it may not be traded in the CBOT pit, water is a commodity. When scarce, it’s the one commodity even more valuable than oil or gold.So when Big Oil starts pouring money into water rights and alternative energy, we want to pay special attention. We tend to believe that water rights will be valued in this century much as oil rights were in the last.

Most analysts tend to focus on this generation’s need for primary care and medical assistance. We’re taking another approach. We think fast-growing regions like Arizona, Nevada and Southern California will place a great strain on the Southwest’s dwindling supplies of fresh water.

We think this story holds real long-term potential. And we’ll keep our eye on developing opportunities overseas.

Remember, headlines often alert you to what you’ve missed, not what you’ve found.

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[Rude Endnote: We here at the Rude Awakening like to make a note of what goes up when other things go down. Inverse correlation is the jargon-speak for such a relationship…but one might just as easily call it opportunity amidst crisis.

So, here’s a not-so-quirky inverse correlation that might be of interest to you.

First, when the dollar goes down, Addison’s book, Demise of the Dollar…and Why its Still Good For your Investments, shoots up. The updated and improved version of the #1 bestseller has been riding high on a wave of dollar lows of late, soaring up the Barnes & Noble and Amazon lists.

Our bet is that the dollar goes lower and, as a corollary to that, we reckon Demise will continue it’s upward swing. If you haven’t already grabbed a copy for yourself, or would like an updated version, click here.

Addison’s book is a highly readable, entirely indispensable book for anyone who cares what’s happening with his or her dollars. If you fall into that category, we suggest you give it a whirl.

Until tomorrow…

Cheers,

Joel Bowman
Rude Awakening