The Rude Awakening
Wall Street, New York
Friday, December 1, 2006 - Plummeting temperatures vs. skyrocketing stock prices - which will give way first?
- Peak discussion from New Orleans and your roundtable insights from the conference there,
- The RESERVE is opening again (shhh…) stomping OPEC and plenty more…
Joel Bowman, with a fresh-off-the-press announcement… Had you attempted to sign-up for our premium lifetime service, the Agora Financial Reserve, anytime over the past couple of months, you would have encountered the following message: "Our Apologies… the AGORA Financial Reserve is presently closed to new members. "If spots in the Reserve happen to open up in the future, you will be notified with a personal invitation. You can join the waiting list, or you can periodically come back here to check and see if the membership is open. "Thank you for your interest in the AGORA Financial Reserve!"
Well, Rude reader, an e-mail from our head publisher, Addison Wiggin, yesterday afternoon confirmed that the Reserve is again be opening its doors today! If you are interested in applying for membership, click here. Now over as Eric Fry, bundling up for the So. Cal. Winter, reports… The chill of winter has finally descended upon the Southern California coast. The mercury plummeted to a bone-numbing 67 degrees today, while the wind-chill dropped down to 66 degrees. Gone are the balmy days of summer; gone are the beach umbrellas and the beer coolers and the bikini-clad tourists. In their place we now find only vast expanses of white sand…and bikini-clad locals. Okay, so maybe Laguna Beach is not Lillehammer, Norway, but the temperatures have dipped a few degrees since August. And up in the American Northeast, the temperatures have dipped a few degrees more. Because temperatures are falling, the experts on CNBC explain, energy prices are rising. (Let's forget for the moment that crude oil hit its all-time high in the middle of July). "Below-normal" temperatures will arrive in the Northeast early next week, according to the National Weather Service. Perhaps the impending "below normal" temperatures also explain the simultaneous "above normal" rallies in stocks, bonds, gold, corn, wheat, orange juice, non-dollar currencies and almost every other asset besides American homes and American dollars. It is possible, of course, that rallying asset prices have nothing whatsoever to do with the weather…but everything to do with animal spirits and good, old fashion speculation. In other words, as we thoughtfully explained in yesterday's column, stocks might be rallying just because they're rallying. The higher they climb, the more enthusiastically investors chase after them. Before you know it, you've got a swarm of giddy investors Tivo-ing CNBC and declaring Jim Cramer a genius. We don't know Jim Cramer's Mensa score. Perhaps he is a genius. We only know that he becomes more of a genius when stocks are rallying. We remain concerned, therefore, that Jim Cramer might soon become less of a genius. We're concerned that stocks might begin to fall for a while, just because that's what stocks often do after they've been moving straight up for six months in a row. Most gauges of investor's sentiment are flashing extreme bullish readings. These contrary indicators, therefore, imply that stock prices are more likely to fall than to rise, over the near-term. Our "go to" options pro, Jay Shartsis, noted again yesterday that the relative prices of OEX puts and calls reflect "a very high level of option-trader optimism, which is bearish in its implications." And while we are nervously watching the stock market, we cannot seem to avert our gaze from the ever-tumbling value of American homes and American dollars. We suspect these two phenomena possess an intimate, complex and toxic connection. We suspect - but we cannot prove it - that somehow, and in some way, falling home values are inspiring an exodus from the U.S. dollar. Even if the bullish investors on Wall Street fail to see a connection, the folks who hold our currency might think they see one. The world's dollar-holders might think they see a consumer whose primary means of consumption is eroding, and therefore, an economy whose primary means of expanding is also eroding. The dollar-holders might also think they see a current account deficit that never lacks for a means of expanding. A tumbling U.S. dollar always makes us nervous, especially when very few investors seem to care about it. If it keeps falling, the chilling gusts of dollar debasement might cause a shiver or two on Wall Street. --- The Future Energy ---
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By Justice Litle Well, that's done -- another life goal checked off the list. I can finally say it: I've been to Bourbon Street, and I downed a Hurricane at Pat O'Brien's. (It tasted like Kool-Aid with a dirty sock mixed in, but I drank the whole thing. There were witnesses.) More seriously, New Orleans is a great town…and the New Orleans Investment Conference is a great conference - one of the best I've ever attended. If you have room for only one event in 2007, I hope to see you at the Fairmont next July. But if there is room for more than one, put New Orleans on your list. And now some highlights, lowlights and insights from New Orleans 2006. The "dry wit" award goes to Doug Casey. In a political debate with Susan Estrich and Newt Gingrich, Casey took the libertarian point of view, shaking his head in bemused exasperation at left and right alike. Casey on public schools: "The U.S. educational system is a toilet that needs to be flushed." Casey on politics: "Traditionally, Republicans are the warfare party and Democrats are the welfare party. I don't care about either." Casey on America's future: "This country is shooting itself in the foot with a machine gun." Frank Veneroso, one of the few bears of the conference, made a case for "nuclear winter" in both precious and base metals. He argued that the run- up of recent years was entirely due to excessive hedge fund speculation, but curiously, made no mention whatsoever of macroeconomic factors. Mary Anne and Pamela Aden, longtime publishers of The Aden Forecast, later refuted Veneroso's view with their presentation on why gold's bull market has years left to run. Their argument was almost wholly top-down in nature, and essentially a reiteration of the debt-liquidation trade: the impact of central bank diversification, geopolitics, deteriorating fiscal policy and so on. Frank Holmes of U.S. Global Investors made a powerful, data-driven case for emerging markets, pointing out how they are still "undercapitalized, undervalued and underleveraged" in comparison with mature Western climes. For me personally, the highlight of the conference was meeting Jim Rogers. I shook his hand, conversed briefly and got an autographed copy of Investment Biker, the book that launched my market journey more than a decade ago. That was a real thrill. On a "global investment panel" including Steve Forbes, Jim Rogers, Marc Faber and Dennis Gartman, sparks flew over Japan and India. Dennis Gartman stated his belief that Japan would eventually become "irrelevant," due to an all-encompassing mega-trend of demographic decline. Marc Faber offered the caveat that while Japan's long-term economic future may be uncertain, there are still opportunities in the nearer term. Faber also pointed out the existence of high-quality Japanese companies, like Toyota, that are not shackled by demographic woes. When discussion turned to India, Jim Rogers insisted that he "wouldn't invest a nickel" there. Steve Forbes countered that India's many problems could be viewed as long-term opportunities. Faber submitted that anyone who likes India might like Vietnam even better: a similar growth profile, but with a 90%-plus literacy rate, a homogenous population and no major religious conflicts. Discussion then turned to democracy and the rule of law. Steve Forbes argued that democracy is the sine qua non of economic opportunity. Jim Rogers countered that if he had insisted on democracy as a prerequisite for investing, he would have missed out on great bull markets in places like Singapore, Taiwan and Korea. Gartman tried to reconcile the two views by emphasizing the underlying trend -- the ideal being a trend away from authoritarianism and toward freedom. If "the needle is moving in the right direction," Gartman suggested, that is probably a good investable criterion. "Well," Rogers quipped, "by that standard, you shouldn't be investing in the United States, then." The low point of the conference -- from your humble editor's perspective -- was Robert Prechter's presentation. I've never been a fan of Elliott Wave, but imagined Prechter would have some intelligent things to say. I was sorely disappointed. Prechter began reasonably enough, highlighting the dismal performance of the major indexes relative to gold. Using gold as a proxy for inflation, the point was made that paper asset gains aren't what they seem. So far, so good. Then he promptly went off the reservation. It gets worse. Prechter cited the Middle East stock market crash as evidence that Peak Oil is not real. He read aloud from newspaper clippings, describing how investors in the Tadawul index were keeling over from heart attacks. "If Peak Oil is real," Prechter asked the audience, "how come Middle Eastern stock markets are going down, and not up?" Well, sir, it might have something to do with petrodollar velocity. When you jam a fat fire hose of liquidity into a relatively closed economy, the effect can be like launching a water rocket straight up into the air. Gravity must kick in at some point; this speaks to human nature and the laws of market physics, not the geological realities of Peak Oil. What's more, Peak Oil is not exactly a Middle East-friendly phenomenon. Should the Saudis be expected to clap and sing, "Hurray, hurray, our meal ticket is running out -- everyone go buy shares"? Finding himself in a hole, the man then produced a shovel and kept digging. Say the Peak Oilers are right, Prechter mused. What would the price of oil be if we completely ran out? "The price would be ZERO," he replied -- with great gusto in his voice -- because "it's like whale blubber… people don't care about oil, they care about transportation." The utter vacuity of the statement literally took my breath away. Forty-seven percent of all the oil we consume winds up in gas tanks; energy supply chains are stunningly complex; and large-scale energy transitions are measured in decades, if not centuries. Prechter is marvelously oblivious to all of this. On the road to "zero," if it comes to that, we could pass through rationing, restrictions, government intervention, Western nationalization, large-scale military conflict and economic chaos, if not collapse. But I guess none of that matters, eh? OK, enough of that. As bad as Prechter was, I'm happy to say that Marc Faber more than balanced him out. I have never seen so much data packed into such a small space, all of it delivered with enthusiasm, clarity and insight. One of Faber's most provocative assertions was that a U.S.-led recession could actually strengthen Asia, rather than weaken it. If Western companies are feeling the pain, Faber mused, they are more likely to cut where costs are high… and to shore up where costs are low. If Faber is right, the outsourcing trend could actually accelerate in the event of a U.S. slowdown. Faber also pointed out that dollar-based economic comparisons can be highly misleading. On a "units of productivity" basis, China's economy is already 60% the size of America's… and already the second largest economy in the world. Faber also reminded the audience that, thanks to the miracle of the printing press, the PRICE of financial assets can rise, even thought their VALUES fall. In other words, it is possible for assets to lose value in real terms, even as their paper value increases. The Dow could go to a trillion, Faber mused…but of course, gold would be millions of dollars per ounce if that happened. One of the strongest themes of the conference, reiterated by Jim Rogers, Marc Faber, Frank Holmes and others, was that Asia, and particularly China, is much stronger than some might think. All the loads of cash on Asian balance sheets put these countries in a very strong position, and domestic activity is more robust than typically reported. Rogers further pointed out that China could endure a real estate collapse, or even a full-blown economic collapse, and that would not necessarily put a halt to things. He reminded the audience of the Panic of 1907, almost a full century ago. The United States went completely bust back then, yet become the most prosperous country in the world not long after. Rogers voiced similar long-term perspective in regard to commodities. All great bull markets endure drawn-out declines from time to time, he reminded us, and should be taken in stride. Hmmm…sounds like sage advice. [Eric's Note: Justice Litle did not merely attend the New Orleans investment conference, he also participated. In a recent column for our friends at Whiskey & Gunpowder, Justice shared key aspects of his conference presentation. Click here to see the story… Punctuated Bubbleibrium - By Justice Litle --- Special Oil Report --- NO More Oil Wars…NO More Sucking Up to Saudis… One overlooked company is set to put Mideast Inc. Out Of Business And deliver YOU oil-sheik-sized investment gains…like 172%, 385%, even 586%. But only if you get in on this amazing company TODAY! | 
