Agora Financial’s Rude Awakening

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Dubai, UAE

·      An in-depth look at the long, hard road ahead for Obama,
·      Is your 401(k) in danger of being stolen? What some congressmen have        proposed,
·      Learning from others mistakes AND successes, plus plenty more…

Joel Bowman, reporting from Dubai in the Persian Gulf…

It is often said that, mistakes being inevitable, the best we can hope for is to learn from them. This is most often true…except in the case of fatal error, in which instance others may learn from you. With that in mind, let’s go mistake hunting.

We’ve long maintained that Dubai is really just like America…on steroids. Where the U.S. has supersized Wal-Marts, for example, the UAE has indoor skiing at the mall. While militant enviro-nuts around the world scream for the U.S. to rein in its carbon emissions, the UAE happily spews out the second highest per capita emissions of any country on earth (approx. 7 million tones per person annually). While the U.S. endures a reputation for obesity, the percentage of national UAE adult suffering from diabetes stands at an incredible 19.5% (world average, approx. 5%).

In short, the U.A.E is just like the supersize country…only super-supersized. It stands to reason then that, as the U.S. suffers a super-sized financial fiasco, the City of Gold would go one better…

This week Dubai finally joined the elite of the elite when it comes to embarrassing market meltdowns. After plunging over 16% in the first two trading days, Dubai’s DFM Index may now rub shoulders with the likes of Russia, Iceland and Ukraine in the illustrious “Sub 60% YTD Club.”

There are so many inputs to credit here (the rest of us will cal them “lessons”), and so little space available, that a brief run through the list will have to suffice. Please forgive us if we miss anything out.

First of all, such a calamitous collapse wouldn’t have been possible without insidious government intervention into the everyday life of the economy. Distortion of market fundamentals, rent caps, wage manipulation, ongoing “Emiratization” of the labor force, bloated welfare programs, intervention into the banking and construction sectors, nationalization of the emirates resources and the blatant and severe restrictions on freedom of the press have all played their part.

Of course, a giant public relations scam is nothing without a complicit public. To everyone who “bought on spec” with the primary goal of dealing your property off to an even bigger idiot, we salute you! The magnitude of the Dubai real estate bubble (think man-made palm islands, the world’s tallest building, “The World,” etc.) and the coming collapse would not have been possible without your ponzi-like antics.

According to The National newspaper, “Residential prices for Emaar Properties’s signature Downtown Burj Dubai development have fallen by at least 22 per cent, with reductions of up to 50 per cent within the Burj Dubai tower itself.”

Local real estate brokers are trying to sure up investors who, having sensed that the game might be up, are scrambling for the door, selling at and even below zero-premium. Such a panicked exodus must have seemed so unlikely when the centerpiece tower sold out in record time. (The tower is not even due for completion until late next year!)

The situation is so intense that Llyods TSB Middle East, a British bank, has even stopped issuing mortgages for UAE apartments and is now requiring a 50% down payment for villas.

Predictably, major players in the real estate sector have been absolutely crushed. Emaar Properties, a government owned joint stock venture and the region’s premier real estate developer, was among the worst hit. The company’s precipitous decline over the past month has outpaced even the DFM itself, falling almost 45%. 

We earnestly recommend that those contemplating vying for leadership positions in the One World Economy (Prime Ministers Brown and Rudd, president-elect Obama) take a good look at the havoc excessive government intervention has visited on individual nations before they apply it to the world at large. (Case studies of Russia, the UAE, Venezuela and Iran might be a good place to start.)

Learning from others’ mistakes, of course, is only one way to “edumacate” yourself. Paying attention to their successes is at least equally enjoyable and, more often than not, far more profitable.

With that in mind, we offer you a few thoughts on the global economic predicament from Dan Amoss, editor of the Strategic Short Report. Against the backdrop of the imminent global recession Dan has offered his readers the chance at racking up cumulative gains of over 1,400% on his closed SSR positions. We reckon that’s a success rate we can learn a thing or two from. Enjoy…

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Government-Guaranteed Depression
By Dan Amoss

The American people voted for change…and now they’re going to get it. But the change they get may not be the change they expect Obama to deliver. Something more sinister may be coming our way.

After an historic election and inauguration, president-elect Obama will enter office with a huge list of challenges. These challenges — from a contracting economy to large-scale corporate bankruptcies to soaring national indebtedness — will undoubtedly restrict his agenda.

Let’s hope Obama recognizes the need for incentives, profits, and capital investments in the economy. The economy cannot be taxed and regulated without potentially severe consequences. Former Fed Chairman Paul Volcker (and the last Fed chairman to provide adult supervision for the banking community) is an Obama adviser. So Obama should be apprised of the consequences of Carter-era deficit spending and money printing.

At the very least, Obama must act as a check on the potential for a Democrat-dominated Congress to turn a recession into a depression.

For example, some in Congress are floating a proposal to steal your 401(k), sell the proceeds, and invest in “government-guaranteed” retirement accounts. The only thing this Marxist idea would guarantee is a depression. Call or write your congressman if you feel that your 401(k) is in danger. We shouldn’t allow them to steal more from prudent savers than they already have.

Keep in mind that presidencies rarely resemble campaigns. President Bush campaigned on limited government and a humble foreign policy, and we got the opposite. To top it off, we had the illusion of real growth, with credit and housing bubbles that led to the greatest misallocation of resources in history.

The free market has been falsely accused for this financial crisis. But the free market didn’t get us here; a combination of government spending and crony capitalism did. Much ink is wasted on how we need to re-regulate Wall Street, but the fact is that the problem would never have grown so large without agency conflicts.

The agency conflict on Wall Street is the mentality of “heads I win, tails you lose.” CEOs, traders, and mortgage-backed security factories were paid more for taking more risk. So it shouldn’t surprise us that they overdosed on leverage to magnify returns, without considering risk.

Performance pay should be based on creating long-term shareholder value, not on meeting next quarter’s earnings estimate. A good place to start would be bonuses in the form of restricted stock that does not vest for 10 years. I doubt Lehman would have blown up if employees were paid modest salaries with the potential for sizeable ownership stakes in the future.

Much of our current mess resulted from totally complacent, incompetent boards of directors. Carl Icahn has good ideas for how this can be addressed without excessive regulation. Icahn explains how most corporate boards behave like government bureaucrats in this post . In my view, we need an economy in which everyone acts like owners, rather than CEO-pillagers.

A banking system built upon on a foundation of paper money also contributed to this crisis. The Treasury and Fed allowed institutions to grow “too big to fail.” Without taxpayer subsidies (i.e., Fannie and Freddie — two of the worst crony capitalist institutions in history) and the subsidy of Fed rate cuts, housing prices would have kept growing in step with household income. Instead, house prices went to the moon. Precious capital was thrown into a black hole when mortgage-underwriting discipline went out the window and homebuyers deluded themselves with bubble psychology.

When the current deflation fears are finally slain by widespread recognition that paper money is limitless, we’ll probably see a return to inflation and higher long-term interest rates.

For now, though, demand for bonds remains strong (rates remain low). So the government will likely keep issuing record amounts of new Treasuries and use the proceeds for bailout after bailout, instead of for productive uses. In other words, the government will toss billions of dollars at walking corpses like AIG – a company that produces nothing but spectacular losses and embarrassing headlines – instead of tossing billions of dollars at companies that produce essential items like barrels of oil or bushels of wheat. When governments toss easy credit toward non-productive industries, the supply of currency soars relative to the supply of goods and services. We call this phenomenon, “Inflation.”

The U.S. government’s massive borrowing requirements over the next several months will absorb a lot of the private capital that would otherwise fund various productive enterprises. So that means that farmers and miners and manufacturers will struggle to secure the credit and investment they need to finance their production. And if farmers can’t get credit, they can’t plant crops, which means that grain supplies are likely to fall…and prices to rise.

As Albert Einstein observed, “The significant problems we face cannot be solved by the same level of thinking that created them.” If the federal government proposes “solutions” to this crisis with the same type of thinking that got us here, we could be in for a very long period of economic pain. America’s status as a destination for foreign capital is at stake.

If the new government fails to act wisely and understand how we got here, the only “government guarantee” we’ll have is depression.

Joel’s Note: The silver lining on this doomy cloud is, of course, that short selling experts like Dan Amoss still have plenty of “walking corpses” left to expose. As we mentioned above, Dan’s readers are having an absolute field day right now, raking in gains from fraudulent, ineptly stewarded financial institutions of all stripes. They grabbed an incredible 462% on put options Dan recommended on Lehman Bros. just recently, for example. In fact, the total cumulative gains on Dan’s closed positions stand at an incredible 1,459% - an average upwards of 97% per trade!

Employing a bear market strategy is not just about understanding that the emperor has no clothes on, it’s about putting money on it and enjoying the rich rewards that come when the giants fall.

Although most of Dan’s current open positions have already leapt well above his original “buy up to” price (much to the delight of his readers), you can still get in on the some of the action. One particular play, for instance, has “only” jumped 17% since he first recommended it, well below the 70% average gain currently showing for the rest of his open positions.

If you would like to start taking these companies to task – and enjoying the profits that come along with it – you can read Dan’s full bear market strategy report right here. If not, it could be a long, miserable winter out there.

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The Ingenious “Mammoth Hunting Strategy” Revealed …

This is a rather unusual story…

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While these kinds of profit opportunities fly well outside of most people’s “comfort zone”… those who consider themselves “Big Game Hunters” should absolutely consider implementing this methodology for themselves.

Read on here to discover every detail of this phenomenon.

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[Rude Endnote: It occurs to us that, to the casual observer, it might appear that your editor has been on a bubble-hopping gallivant for the past few years. We’ve lived, for various lengths of time, in New York, Southern California, the U.K. and, to top it off, we currently reside in the place we like to call “Dububble.”

The more astute observer will quickly recognize that there is scarcely a patch on this great wondrous orb of ours that has managed to avoid financial catastrophe. Just about every major world index is in the red, many in the high double digits.

Still, for the serious bubble enthusiast, it’s best to get right up close to the action; so close, in fact, that the delusion is almost palpable and the very anatomy of the scam can be seen with the naked eye. After all, how can we expect to learn from others mistakes if we don’t pay vigilant attention while they make them?

As always, we are open to your thoughts, suggestions and constructive comments. Fee free to email us at the address below with all things Rude.

Until next time…

Cheers,

Joel Bowman

P.S. Oh yeah, don’t forget to grab your free copy of the I.O.U.S.A. DVD. Addison tells us the complimentary “pre-release” inventory is running low, so you’ll want to be quick - JB

The Rude Awakening
aussiejoel@the-rude-awakening.com