Agora Financial’s Rude Awakening

Jump to Comments

Laguna Beach, California

• 1,300 points in 10 days…and we’re nearly back where we started,
• Cramer calls the bottom – and other contrarian indicators,
• The tried-and-failed measure of nationalization and plenty more…

Joel Bowman, reporting from Paris, France…

Poor Jim Cramer. The guy just can’t seem to keep his trap shut. The Mad Money man pounded his fist as usual on Wednesday afternoon, calling the bottom of the market. Fast forward 24 hours and Cramer’s “bottom” had already plunged more than 200 points.

It’s a tough job he’s got, to be sure. Anyone passing off guesses as foregone conclusions for a living usually gets bitten once in a while. For Cramer, once in a while just seems to come around every other week. So goes the nature of the job for a financial weatherman.

Here at the Rude Awakening, we lack both the courage to predict tomorrow’s numbers correctly and the stupidity to engage the task at all. Will the market plummet another 200 points by this afternoon? Maybe. Could it just as easily rally the by same amount? Sure.

Creatures of laziness, such as your junior editor, prefer as little irrational volatility in life as possible. It’s the reason he prefers gold over Pakistani tech start-ups; a simple espresso over a $19 frappa-mocha-something-or-other; a steady girlfriend to an ex-wife. To be sure, there’s probably value to be found in the riskier alternatives, but the opportunity cost of perusing them invariably outweigh the potential benefits. 

That’s not to say the pickin’s have not been ripe for day traders in the recent past. All in, the market has swung about 10% over the past two weeks and, somewhat anticlimactically, ended up more or less where it started. Many people undoubtedly made some quick dough along the way. Many, many more, we would guess, probably lost it.

Betting against a long-term trend is somewhat akin to throwing down hundreds at the casino. You might win a few exhilarating hands early on, but it’s the house that usually claims the chips in the end.

As the Cramers of the world know only too well, a bet on tomorrow’s market is undertaken with zero guarantees. The sun always rises, for example, but the market sometimes falls…and sometimes it falls a lot. 

With that in mind, we’re going to hand you over to Bill Bonner for a long view on America’s past and present successes and calamities. This column is a direct transcription from the address Bill gave to attendees at the 2008 Agora Financial Investment Symposium. Part II will find it’s way into your inbox early next week. Enjoy… 

—- The Energy & Scarcity Investor —-

The breakthrough that could put oil refineries out of business…

This tiny company’s private technology refines crude oil as it’s pulled out of the ground

The U.S. Department of Energy says it could be the key to unlocking an oil deposit in the Rocky Mountains that’s three times the size of Saudi Arabia’s reserves.

And you can get in on it today for a potential 250% gain this year.

Grab Your Energy & Scarcity Research Paper Here

——————————————–

Welcome to a New World, Part I
By Bill Bonner

Well thank you all very much. It’s a pleasure to be here, as usual. I’m actually doing two speeches; this is merely an introduction. I’ll be speaking again on Friday. For convenience, what I’ve tried to do is divide up into two parts so today, what I’m going to do very briefly, because I only have a few minutes, is to describe what I think the world is today and then on Friday we’re going to look ahead to see where we think were going.

What I notice, as you all do too, is just a world of confusion and contradiction. Everywhere you go you see a different phenomenon. For us as investors those two major phenomenons are inflation and deflation, which, according to the classical economists, couldn’t exist together. Either you have inflation, which is pushing prices up, or you have deflation pulling them down. And today we have both, which makes it particularly hard to figure out what to do.

This sort of tension we see in our personal lives too. As a private investor I’m very happy with my gold investments but I’m very disappointed with my investments in emerging markets, which have gone down. And I’m very worried as a parent, I’m worried about the world my children are going to inherit and I’m worried as an investor. But, I must say, as the editor of the Daily Reckoning, I’m delighted to see people getting what they’ve got coming, because it’s been a long time. And finally after all this time I get to point my finger and say, “I told you so.”

So that’s the good part of it.

When we’re looking around the world there are two things I want to draw your attention to just to start out, two single events. One of these was reported just yesterday when the Government of Argentina announced that it was going to renationalize the airline, Aerolineas Argentinas. I thought to myself, “Well, can anyone do a worse job of running an airline than the politicians of Argentina?” Then I thought, “Aw, gee whiz, I’ve ridden on that airline…maybe they could!”

The airline is a total mess, you see. You go there and the planes don’t arrive on time, nothing happens as it’s supposed to happen. And the locals all know this. They have lived through such amazing turmoil that they’ve gotten pretty smart, so they don’t even show up at the airport. One time I was traveling with a group of people (Doug Casey was there with me, I think) and we got to the airport and there was nobody there. “What was going on?” we thought. “It’s an airport and nobody’s here.”

And then we found out there was a sort of national strike going on. All the places had been grounded there was no hope of getting out of that airport on a commercial aircraft. But that’s the sort of thing you find in Argentina. So the Argentineans have gotten pretty used to this and they call ahead. They call the airport and they say, “Is that plane there? Are you sure? Have you seen it with your own eyes?”

And then they gradually begin to believe. You see, after you’ve been through the kind of life they’ve had in Argentina, you want to see things with your own eyes. It’s a different world. You don’t believe anything the government tells you. You don’t believe anything the banks tell you…which would actually see you pretty well situated for living in America today.

In Argentina in the year 2002, which is only six years ago remember, they had the latest crisis. The banks were closed, people went to the bank to get their money and they couldn’t. Then when they reopened they had converted all the dollar deposits into peso deposits and they devalued the peso by 66%. People were wiped out. Two thirds or their money wiped out over a period of just a few days. When that happens to you, you get smart real fast.

The other thing I wanted to call your attention to is going on right now, this week, in Zimbabwe of all places. They have announced the release of a new note, a one hundred billion dollar note. This note is already a collector’s item on eBay. The reason they have the note is because the inflation in Zimbabwe today is – and I’ve gotta get this number right - running at one hundred million percent. Gee, that’s a lot of inflation.

According to this piece I read, a policeman in Zimbabwe now makes $15 billion per month. With that he can buy 20 eggs…or a quart of beer…if he can find them. So the place is falling apart. The banks can’t print the money fast enough. So naturally they have chaos in the economy and people line up to get money. And, because they can’t print it fast enough, they have to ration it. So everybody has the right to get $100 billion per day, no more, and $100 billion is worth about 80 cents.

So these people line up to get their money, and when they get it they realize they can’t buy anything with it anyway, because there isn’t anything to buy.

According to the United Nations there is about 5 million people on the verge of starvation there. Part of the reason is that Zimbabwe has also nationalized the key industry, the agricultural sector. They took the land, nationalized it and then handed it out to their friends. We see in the history of financial disasters a common theme: They’re almost always accompanied by nationalization of some sort, where the bureaucrats and politicians think they can do a better job of running the businesses that they themselves have run into the ground with their own stupid taxes and regulations.

So we’re seeing that today. We like to laugh at Argentina and Zimbabwe…it’s fun to see people doing stupid things and getting whacked for it. It’s like a slapstick comedy. But in the United States of America they’re in the middle of undertaking the biggest nationalization ever seen in the history of mankind: the nationalization of the key industry of lending for housing, Fannie and Freddie. You know, those two GSEs have half of the entire mortgage of the US, which is an amount of about $5 trillion. That is a big event! It’s a big nationalization event.

So, while we’re talking, I wanted to draw your attention to a speech given by this fellow Richard Fisher, who I’d barely heard of before. He is the chairman of the Dallas Fed. He was speaking in San Francisco. He reminded the audience that there are thee American Medicaid programs with total unfunded liabilities of $85 trillion. And if you add in Medicare and Social Security, the total comes to around $99 trillion. And there too, that’s a lot of money.

But you just hold that thought. I’m going to come back to that in the second part of my speech, when I describe what I think is going to happen in the next stage of this exciting evolution.

[Joel's Note: We’ll be offering a few more of the best presentations from the 2008 Agora Financial Investment Symposium over the coming days but, if you wish to secure yourself an audio copy of the entire event, you can do so here.

The entire conference is available on both CD (about a dozen or so disks, I think) and MP3 format. So whether you want to listen to them at home, on the road, while doing housework or while you’re at work, there’s a medium to suit you.

The first round of these audio sets were snapped up like hotcakes so if you want to avoid a possible delivery delay, we suggest reserving your copy now.

Grab Your Vancouver Audio Set Here

—- Resource Trader Alert Guest Pass Offer —-

An ultra-rich trading expert now offers you…

A Behind-the-Scenes “Guest Pass” to Profit in the World’s Most Secretive” Millionaire’s Market ”

Beginning tomorrow at 7:10 a.m. EST, you can use your “guest pass” to go behind the scenes in the financial community’s best-kept secret: the “Millionaire’s Market.”

Once inside, you’ll have a chance to legally “withdraw” $810 or more per week — and you’ll be able to deposit the money directly into your retirement account! Grab Your Pass Here

——————————————–

[Rude Endnote: By the time you read this, we’ll be on our way through the beautiful French countryside and Cramer will be a hero or a villain. Either way, we’re long gold for the long haul and short fancy Starbucks drinks in the meantime. We’re not sure, of course, but we reckon we ought to fair pretty well.

Until tomorrow…

Cheers,

Joel Bowman
Rude Awakening

aussiejoel@the-rude-awakening.com