Agora Financial’s Rude Awakening

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·      Losses in equities worldwide top $25 trillion. What say ye, Obama?
·      Japan, eurozone enter recession, Gulf bourses continue to tumble,
·      Turning fear into profit: A special volatility report, and plenty more…

Joel Bowman, reporting from Dubai in the Persian Gulf…

The bloodletting continues.

On Friday the 15-nation Euro-zone announced that it is officially in a recession. GDP contracted by 0.2% for a second consecutive quarter over on the continent with Germany and Italy leading the way backwards. France narrowly escaped an “official” recession – two consecutive quarters of negative growth – by the narrowest of margins, posting 0.1% growth.

It has been 15 years since the last time Europe experienced such a large-scale downturn. Back then, of course, each country was able to act independently on monetary policy. Now they must seek permission from EU executive before rushing to save their own behinds. We wonder how the bureaucratic behemoth is taking the news and, more to the point, how it will react.

Socialist E.U. MPs were quick to satisfy our curiosity, outlining their solutions hours after the recession was announced in a report containing five helpful tips on how to deal with it. They read:

• Targeting measures to help on those who need it most and in particular small firms and vulnerable households. This will involve rapidly restoring levels of lending to households and businesses, especially SMEs
• A European ban on mega-bonuses and golden parachutes;
• Refusal of compulsory redundancies
• Implementation of a European Green Investment package to boost the economy, avoid a long-lasting recession and help Europe to meets its climate and energy goals
• Revival of the Doha world trade talks to reach successful, development-friendly conclusions.

Let’s see here… We’ve got a promise of more talking, an increase in needs-based lending, protectionism in the job market, oversight on private compensation and a twist of environ-socialism, just to keep the voters happy. We’ll be interested to see how that turns out for them.

Meanwhile in capitalist Japan, the world’s second largest economy is losing fluids quicker than like a hemophiliac in a samurai fight. It too announced this morning that the long gray cloud of recession hangs over its islands. Growth there slowed 0.1% during the past three months, on top of a 0.9% slump the previous quarter. 

It seems recession known’s no party lines.

Here in the Middle East, where the political process has scarcely evolved beyond medieval feudalism, markets continue their relentless slide, wiping out billions of investor dollars and bringing the much-lauded real estate sector to its knees.

Since July 1, Dubai’s real estate index has shed a stunning 75%. Emaar, the largest developer in the region, has fallen more than 57% in the past seven trading days alone! When even the king’s newspapers start using words like “battered” and “thrashed,” you know you’re in trouble. 

Preposterous as it may seem, the expectations of kings, prime ministers, dictators and the Joe the Plumbers of the world now rest on the shoulders of one man. In the column below, Bill Bonner takes a closer look at all the hoopla surrounding the president-elect and offers a few guesses for what’s in store next…

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O! BAMA! THE WHOLE WORLD TURNS ITS WEARY EYES TO YOU…
by Bill Bonner

Mr. Obama became the president-elect of all the Americans last week. No man’s coffee tasted better on Wednesday morning than it did on Tuesday…no woman’s perfume smelled sweeter. But all over the world, people felt better about themselves, as if the human race had achieved something important.

At least a McCain victory would have caused the press to hold its tongue. Instead, commentators drew all the wrong conclusions and made fools of themselves. Some thought it meant America’s redemption from the sin of slave trade. Others saw a historic transformation that they couldn’t put in words and shouldn’t have tried.

“They did it. They really did it,” wrote the Guardian . “…the American people yesterday stood in the eye of history and made an emphatic choice for change…”It’s the “End of the National Nightmare,” said TIME magazine.

Amid the effervescence came the French. Obama’s victory “arouses a wild yet reasonable hope,” claimed Bernard-Henri Levi in the Financial Times . Mr. Obama’s election will affect us in “at least three concrete ways,” he continued…a decisive turning point in dealing with the ‘racial question’ in the US…hope for an America that began doubting its “famous mission”…and with Obama representing the USA, “anti-Americanism…will have a harder time surviving and it will be forced to revisit its sales pitch.”

Nobody knows what America’s “famous mission” is – certainly not the Americans themselves. And if those are his ‘concrete’ ways, we’re glad Mr. Levi is not building bridges. There was nothing concrete about the hopes Mr. Obama’s victory arouse. Just the contrary…they are all in the ether.

They shouldn’t let French philosophers comment on American politics; they take the whole thing far too seriously. Besides, you never know what they are talking about anyway. But Le Monde saw it clearer. Not only was the paper happy to see the United States finally rinse the stain of racism out of the Stars and Stripes, it was glad to see Americans give free market capitalism the flush too.

Obama will be “reviving the role of regulation in the U.S.; [devising] tax policies to smooth out increasingly wide socio-economic divides; planning a health-care system appropriate to the country’s wealth,” said the paper. In other words, he will be putting in a system of state-directed capitalism, just like they have in France.

None of the commentators we read really understood Obama’s triumph. They saw it in a yearning for truth and a stretch for progress. It was nothing of the sort. The last thing voters want is the truth; they will reject it if it is put in front of them. Instead, what they want is diversion from the real world. What they hope to get from their leaders is a kind of entertainment…in short, a fantasy. Something to cheer them up when they are down. Or something to give them a fright when they are up.

You’ll recall from last week, the last period of Great Calamity – 1914-1945, with its wars, epidemics, Dust Bowls, hyperinflation, Great Depression, mass murders, bankruptcy and revolutions. It was in the middle of this period that Americans elected Franklin Roosevelt, who told them they had “nothing to fear but fear itself.” It was all in their heads! It was a whopper, but it was the whopper they wanted to hear.

And then, on right side of the Atlantic, Britain chose Winston Churchill as prime minister, in May 1940. Churchill crossed his fingers and put his hand behind his back immediately, claiming that Britain was not fighting to save its overseas empire, but to “save the whole world.” He promptly kicked out any official who was “exercising a disturbing or depressing influence,” that is, any who dared to tell the truth about Britain’s disastrous military situation.

Just weeks later – in France, after suffering the most humiliating defeat in their history, the French recalled an old man to power, Philippe Petain. The hero of Verdun made the French feel that they had just regained their national glory, not just lost it. But at the time, France’s fantasy seemed on more solid ground than Britain’s…which just goes to show how unreliable history can be. Sometime make-believe becomes real; usually, it doesn’t. Britain got the backing of the Roosevelt administration – which had promised voters to keep America out of the war – and beat the huns; Churchill died a hero. Petain died in disgrace.

Today, in the U.S.A., the Bush Administration has worked hard to make people fearful – with its torture chambers and preposterous “threat levels.” But the terrorists wouldn’t cooperate; they failed to blow up even a trash truck. Alas, now the mob sweats – and for good reason. People are afraid of losing their houses, their jobs, and their retirements. Losses in equities worldwide top $25 trillion. In U.S. housing alone, some $4 trillion has disappeared. That’s why Obama won; it has nothing to do with national redemption or Sarah Palin. When the world was safe and plush…the mob wanted to feel the frisson of danger. What the public wants now is safety: a movie with a happy ending, not a horror flick. Obama appeared the calmer, more intelligent, candidate. Voters could imagine him as the “black Roosevelt” giving soothing fireside chats and telling the lies they most wanted to hear.

And so, in the national narrative, one cockamamie bamboozle takes the place of the one that went before. Americans were supposed to be fearful; now they are supposed to be confident. They were supposed to be racists; now they are supposed to colorblind. They were supposed to defend free market capitalism to their last breath; now they turn to the state and beg it to protect their last dime.

[Joel's Note: Bill Bonner is the founder and editor of The Daily Reckoning . He is also the author, with Addison Wiggin, of the national best sellers Financial Reckoning Day: Surviving the Soft Depression of the 21st Century and Empire of Debt: The Rise of an Epic Financial Crisis .

Bill’s latest book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics, written with co-author Lila Rajiva, is available now by clicking Here: Mobs, Messiahs and Markets

— When Fear = Profit: A Special Volatility Report —

The volatile month of October saw the VIX Index hit an all time high of 89.53. Put simply, the markets are bucking and kicking like we’ve never seen before .

With such unpredictability, it is difficult to know where to invest, if at all.

There is, however, one man who has been relishing the recent whipsawing market conditions. Steve Sarnoff has been on an absolute tear lately. His last five picks have all more than doubled… and are sitting at cumulative highs of 1,222%.

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[Rude Endnote: We welcome all comments from communists, tsars, free-market thinkers, kings and Mr. and Mrs. Joe and Josephine Plumber alike. If you would like to have voice an opinion, send your comments in to us at the address below.

Until next time…

Cheers,

Joel Bowman

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