Agora Financial’s Rude Awakening

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Laguna Beach, California

• Flat lining before a 1000% spike in the “West knows best’s” markets,
• The ins and outs of “conspicuous consumption,”
• A lament, a wail and a whining reflection…plus plenty more…

Joel Bowman, reporting from Dubai in the Persian Gulf…

It’s been a while since we turned the pen over to the inimitable Rude Readership for some views “from the field.” Before we get into today’s missive, let’s do just that…

“See the shiny, new American military budget,” writes one reader “Run budget, run! Look at the budget that has already been put forward for next year. Consider what drives the military and the fact that we are still *shipping* oil to Iraq to drive it.

“I strongly suspect that any decrease in consumer demand for oil will be met with by the military (of many countries) with “Thank you, Sir; and may we please have some more?”

“And of course in the developing economies use of oil isn’t going be limited to gasoline for cars. One word, “plastics.” That means all of those consumer goodies that the emerging middle classes are going to want for themselves instead of shipping to us.

“But what it really comes down to is this. Oil is power, power is oil, in both senses of the word “power.”

“I can only see a world where demand continues to outstrip supply until the stuff is either gone or the world destroys itself in a militaristic frenzy to obtain it (while actually burning the stuff at geometric rates. Hey, it worked for the financials, didn’t it?)

“Oil! Oil! My kingdom for a barrel of oil.”

“Buy oil. Die rich - but will you be around long enough to spend any of it, THAT is the question.

“Maybe the time has finally come to just throw all my money into hedonic nihilism.

“Hey, don’t laugh, that makes at least us much sense as the radical conservatism that got us into this mess in the first place.

“Now if you’ll excuse me I’m going to go out for a bicycle ride, fuelled by bananas. That always used to make me feel better, but have you seen the price of bananas lately?

“Turns out the little, yellow fruits don’t walk to NY from Argentina. Who knew? Yours, Kevin in New York”

And this, from another…

“I have greatly enjoyed your columns, although it’s hard to keep up with them when you’re retired and have not the time.

“I have just read Christopher Hancock’s comments in your 4/18/08 column, again, and want to share with you my own approach to the opposite of CC (subject).  It is “inconspicuous under-consumption”.  By this I do not mean scrimping, but simply being attentive and conserving, and not making a point of it (except in this e-mail).

“Some time ago I realized there were (at least) two approaches to economic life:

1) Spend all you can to achieve the most extravagant life-style you can afford.
2) Choose a life-style with which you are comfortable, and achieve that life-style as inexpensively as possible, not scrimping, just always being aware of what you are doing.

“The former approach leads to Conspicuous Consumption, for a short time, and the latter to its opposite for a much longer time

“Before you complain that this is the approach of the “green-earthers”, PETA people, and other left-wing “revolutionaries”, I assure you that I am not one of those.  Their objective is not their stated one, but rather the accumulation of political/economic power over other peoples lives and activities and self-congratulation and aggrandizement.  My objective is only to do what I can to achieve the goal of living a responsible, satisfying life, without coercing or arm-twisting anyone else.  I have been doing this for several years, from personal conviction, certainly not from economic necessity. Does this put me ahead of the curve?

“An additional outcome (which I think is beneficial) is that it requires a long-term view, which is certainly the only approach to investment decisions. Please extend my thanks for his thoughts to Christopher Hancock.

“Sorry to make this so long, but your mention ‘of down-sizing, cutting back …’, etc., as the new “popular life-style” prompted me to share a bit of my personal philosophy. Thanks for reading – Chuck”

And now over to some words from Bill Bonner, writing from his home in Ouzilly, France…

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Beta Beats Alpha
By Bill Bonner

Primitive people imagine that they are to blame for whatever goes wrong – floods…earthquakes…volcanic eruptions; they appease the gods by tossing nubile virgins into volcanoes and building huge monuments of granite in their honor.

Modern people imagine that they are to thank for whatever goes right. Did they not write the Treaty of Versailles…and invent both Long Range Ballistic Missiles as well as Long Term Capital Management? Didn’t they build Las Vegas? And hasn’t Ben Bernanke finally taken the crunch out of the credit cycle?

What follows is basically a lament…a wail…a whining reflection on how we flatter ourselves…and why the most flattered are the best short sale candidates. The short version is that “alpha” is a windy fraud. In broader terms, the moral of the story is simply that whenever you feel proud enough to offer advice to others, you should prepare to get it yourself. Good and hard.

What brought this to mind is a news item from the New York Times: America’s president seems to have an insight. The reason food prices were going up, he guessed, was because people in India had more money in their pockets and now they wanted to eat more. This remark might have gone unnoticed, but for the fact that it was true. The foreigners are getting richer…and uppity. “Asian Age,” of New Delhi, whose name gives you an idea of the way the Indians think things are going, said the U.S. president wouldn’t “get away…with passing the buck on to India.” Others threw biofuels and agricultural subsidies in America’s face. Then, striking low, they said Americans ate too much; if they just slimmed down to the weight of middle-class Indians, said Pradeep S. Mehta, “many hungry people in sub-Saharan Africa would find food on their plates.”

What a revolting development! For four generations, America has been the world’s alpha nation – the country with the money, the power, and the answers. Generations of Americans have offered advice to the rest of the planet, confident that they knew best what was good for everyone. Wilson showed up in Le Havre with his “14 Points” in 1918. Clemenceau remarked sourly, “God only needed 10.” From then until six months ago, the world’s unfortunates had to put up with American know-it-alls. “Tear down this wall,”
said Ronald Reagan and the neo-cons. “Dollarize,” said Jeffrey Sachs and the Chicago boys. U.S. military “advisors” showed foreign armies and terrorist groups how to kill more efficiently. U.S. businessmen explained how to set up factories and operate them more profitably. (F. W. Taylor introduced ’scientific management’ …Stalin loved his ideas, which still are known as ‘taylorism’ in much of the world.)

A long stream of professors handed out trade secrets like chewing gum, confident that the ideas would never stick; foreigners would never really get the hang of it. They urged free-market policies, monetary reforms, and market regulations. Agricultural engineers introduced peasants to pesticides and DDT. And just as 17th century priests showed the heathen how to copulate correctly, our own world improvers demonstrated to couples all over the world how to copulate without begetting. There was no vanity too absurd…no
pretension too embarrassing. By the 1960s, Americans were even sending their children – who hadn’t yet learned a trade or earned a living – in the belief that their callow bodies, in the Peace Corps, might lift the fuzzy wuzzies out of poverty…like Pharaoh’s wife plucking Moses up out of the bulrushes.

And then, wouldn’t you know it? The little Moses all over the world took the advice, set up their own shops…and now they’re back-sassing America’s president and stealing its best customers.

And here, for further elaboration, we return to the world of money. While Americans offered advice gratuitously, Wall Street offered its own advice, for a price. The financial industry hotshots said that they, too, had some special magic. Yet, a colleague recently handed us a chart of the London stock market over the last 107 years. What is remarkable about it is that it shows a flattish line beginning over the far left and running right along the bottom for three-quarters of the page. Then, after lying in the dirt for
three-quarters of a century, the chart suddenly springs to life like a locust, in the early ’80s. In the next 20 years, it shot up more than 1000%.

This same phenomenon is visible in almost any market you choose to look at. There are small gains – and small losses – all the time. But the big gains come all at once. In the gold market, for example, except for occasional war spikes, the price barely budged from the defeat of the Spanish Armada until the 1970s. Then, an investor who bought the stuff in 1972 would have seen his money multiplied 21 times in the next eight years. Following this exertion, gold went back to sleep…and didn’t wake up for another two decades.

The pretense of America is the pretense of Wall Street. It is pretense of alpha itself and the vanity of the species. While Wall Street promised investors elusive, above-market gains – alpha – the real gains came from merely being in the right place at the right time. Beta, in other words. Likewise, it was no special genius that put Americans on top of the world; it was simply being in the right place at the right time. Too bad they can’t stay there.

[Joel's Note: Bill Bonner will be joined at the podium by investment guru Jim Rogers as keynote speakers at this year’s Agora Financial Investment Symposium. Spots are almost all taken, so if you’ve been on the fence about whether or not to join us in Vancouver to discuss investment opportunities in the time of scarcity, this may be your last chance.

Take a look at the program, tell your boss you have an “important business meeting” and book your tickets here.

—- Investing in the Era of “Peak Everything” —-

Oil hit a new record high… Gas could soon be $4 a gallon… silver, wheat, corn, you name it — all the “resources” of daily life are soaring in price!

Yet there’s a way to protect yourself and profit in the days ahead…
 
Join Us in Vancouver in July for an Exclusive Look at…

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Reserve Your Spot Here .

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[Rude Endnote: As always, we welcome your thoughts here at our humble little fringe publication. The best part about not being mainstream is that, save for things like racist remarks or inside info, you are free to say what you like. 

So, do you feel like getting something off your chest? Do you have an investment idea you want to throw up for Rude debate? Send your virtual two cents to the address below.

Until tomorrow…

Cheers,

Joel Bowman
Rude Awakening