The Rude Awakening
Tallinn, Estonia
Friday, August 17, 2007 ------------------------- - Anatomy of a depression and autopsy of a bubble,
- Real estate in "some trouble" - Um…yeah,
- An unlikely shelter from the financial firestorm and
plenty more…
------------------------- Joel Bowman, reporting from the Baltics… Down as much as 300 points yesterday, the Down Jones Industrial Average recovered to close at 12,845.78, a mere 15 points below its open. Optimistic investors may be inclined to view this as a sign that the market has found some stability. We're not so sure…and neither are investors around the world who take their cue from Wall Street's wobbles. Yesterday Japan's Nikkei tumbled 5.5% on heightened worries about the global credit crunch. Brazil's Bovespa, the largest market in South America, dropped over 2.5% and the Aussie reserve bank was forced to buy Aussie dollars for the first time since 2001 as it clamored to plug the leeks in the ASX. At one point, the Aussie markets were down around 5%. Emerging markets also felt the ripple-on effect just one week after central banks around the world tried to calm the waters with $290 billion in emergency funds. "It's a selling panic," said Mark Mobius, reporting for Bloomberg.com yesterday. Mr. Mobius who oversees $30 billion of emerging market investments at Templeton Asset Management Ltd. in Singapore, added, "We're seeing a lot of negative news with few positives." There are few places in the world right now left unscathed by the credit crisis in the US. Confidence has been rocked and emergency measures undertaken by central banks sounds more like wailing sirens than soothing tones. What is an investor to do? In Wednesday's edition of the Rude Awakening, we featured Doug Casey's bleak outlook for the global stock, bond and property markets. Doug offered these prognostications about two weeks ago at the Agora Wealth Symposium in Vancouver, Canada. Today, in part II of his message, we feature his bleak outlook for the global economy. But Doug also offers a slim ray of hope and opportunity… from a very unlikely place. --- Wealth Insurance Special Report --- With the stock market gyrating wildly in recent days, wouldn't you like the security of an investment guaranteed to never lose money… while giving you the ability to cash in on a gold price that could reach $2000? Introducing a "WEALTH INSURANCE" POLICY with a potential 201% upside in two years… and zero downside. Click Here For All The Details In This Brand New Report ---------------------------------------- The Greater Depression
By Doug Casey Let me cover the big picture. I do think we're approaching the end of the world as we know it…I think there is such thing as the business cycle. It exists. And we've had the longest expansion - and the strongest expansion - in the world history. But we're at the end of a 25-year boom. It's gone on more than a full generation now. And I'll tell you how it's going to end: It's going to end with a depression, and not just a depression; not just another Great Depression; it's going to be the Greater Depression. What's a depression, incidentally? It's a period of time when distortions and misallocations of capital are liquidated; that's called a depression. Over the last 25 years, distortions and misallocations of capital have produced an artificial boom. But when these distortions and misallocations of capital are liquidated, we'll get a depression. Another general definition of a depression is this: a period of time when most people's standard of living goes down significantly. Now, for the long run, there's no question in my mind the standard of living of everybody on earth is going to go up immensely over the next hundred years. Immensely. But that doesn't mean that we're not going to have setbacks, and I think we're looking at one: A severe standard of living drop. So the economic picture is not going to be good… So what should you be doing about all this? I suggest you really internationalize yourself. I think what you ought to have is your citizenship in one country, your bank account in another country, your investments in a third, and live in a fourth. You've got to internationalize yourself. Most people out there are like medieval serfs, psychologically and physically: they're born some place, they don't go very far from it and that's where they die, and they're going to get exactly what they deserve. Well, you can't be that way. I think you ought to treat the world as your oyster. What am I doing about this? I've been all over the world. I guess I've lived in 12 countries now. And out of 175, I've been to most of them, numerous times actually. What am I doing, where do I want to go, where am I living? Well, in New Zealand. I went there a few years ago for the polo, actually, and the reason was that playing polo there was about 10% what it cost me in Palm Beach, and I liked it better. So we bought a lot of real estate. But since then, the currency has doubled and the real estate within that currency has doubled at least. So I'm getting out of New Zealand. Where am I going now? I'm going to Argentina. And let me give you a tip, okay? Forget about Europe, it's going to become a petting zoo. It's like Disneyland with real stones instead of paper Mache stones. I mean, Europe is on the slippery slope. I wouldn't touch Europe with a ten-foot pole. If this war with Islam gets out of control, Europe is going to be an epicenter. It's going to be a disaster. I'll tell you where you ought to look. Argentina is the place to be. It's the cheapest country in the world. It has low population, incredibly beautiful, the climate is great. One hundred years ago, it was in competition with the US for being the best place in the world and the richest place. But it went downhill radically, radically. But let me tell you something. It's turning around I think. And what's going to happen is driven by the fact that everything in Argentina costs between 10% to 30% of what it costs in North America. That's correct. It's that cheap. It's free. It's free. It's free for us as North Americans. But the Europeans really think it's free with that strong Euro. So you're getting a massive immigration from rich Europeans that can see the handwriting on the wall and like it down there. And I really like it down there. It's just a great society, great society, great place to hang out, prices are right. I mean this can solve most of your investment problems right there, just by transplanting yourself, if you've got some capital. Furthermore, Argentina is going to be insolated from WWIII to a good extent. Hope to see you down there! --- Doug Casey International Speculator Gold Report --- Most investors are…Clueless… about Gold! Most investors have barely begun to wake up to the extreme potential of gold and gold stocks in the coming monetary crisis… leaving the door wide open for you to make investment profits of 500%, 1,000% or more! Click Here To Join Casey's Elite Investing Circle -------------------------------------------------------- Mr. Cotton Issues a Warning
By Eric J. Fry "Dr. Copper" may be the commodity that holds a PhD in Economics, but "Mr. Cotton" holds at least a Master's degree…according to Richard Morrow, a long-time trader of agricultural commodities. Frequently, copper's price movements anticipate overall economic trends. When copper goes down, the economy tends to slow. When copper goes up…the economy tends to expand. Hence, the metal's reputation as a "doctor of economics." But now, says Morrow, cotton may be vying for a similar reputation. Morrow, who hangs his straw hat in Memphis, Tennessee, fears that the slumping cotton price may be anticipating a slumping economy. The falling price of cotton, he believes, is telling us that the housing market is even worse than many people fear. Cotton prices have slumped more than 17% since July 13th - less than one week before the day the Dow set a new all-time high above 14,000. 
"I hate gloom and doom because you can't compound it," Morrow admitted in a missive to his clients yesterday, "That said, here goes…
"Home sales are obviously in some sort of trouble. It can be debated how much trouble they are in but you get the drift. New housing is the number consume of in cotton, as there are so many cotton products to go along with a new house.
"But the real killer is apparel sales," he says. Apparel sales are weak and getting weaker. No matter what your thoughts on the economy, as a cotton trader, these weak apparel sales have got to get you worried about cotton usage.
"The bottom line is cotton consumption is not very good at this time." "Furthermore," Richard emphasizes, "I remain very worried about the volatility in all markets and their potential impact on the Ag. markets. I continue to worry that we are in the beginning stages of a material credit crunch…I continue to think there is loads of risk in all asset markets." "There are two major near term problems in the financial markets," he continues. "There are hundreds if not thousands of hedge funds (and several investment banks) that are 'levered up.' They are getting hit with redemptions and\or drawdown limits. Either way, they are being forced to sell. To make matters worse, they are being forced to sell their quality assets first, as there is no market right now for speculative assets…
"The bigger and longer term problem is the U.S. consumer. For the last 2-4 years, the U.S. consumer has been sponsored by Wall St. to borrow 100%+ of basically any asset he wanted to buy. This has led to very poor credit standards and over-inflated almost all asset prices. In a matter of six weeks, the sponsors of these insane lending practices have come full circle. They now want a
substantial down payment on any asset and a bigger real interest rate. How long this problem lasts is any body's guess. It took a long time and a tsunami of poor lending practices to get into this mess. My guess is it takes a while to work its way out.
Argentina anyone? [Joel's Note: Home sales in "some sort of trouble"? Let's check in with the homebuilders. The country's big six - Lennar, D.R. Horton, Centex, Pulte Homes, KB Home, and Hovnanian all reported Q2 losses. How about mortgage lenders? The nation's largest, Countrywide Financial Corp. is on the brink of bankruptcy. Prices? The National Association of Realtors reports a fourth consecutive quarter of retreating prices. Some trouble in real estate? Yes, we would say that. Fortunately, subscribers to Mike "Mish" Shedlock's Survival Report armed themselves with a triple-edged "housing hedge." With their put options on Countrywide up about 220% as of yesterday's trading, we'd recommend checking out the rest of the report. You may have caught part of it in Addison's Executive Series Investment Alert last eve…but if not, you can read it right here: Mike Shedlock's Survival Report - The "Housing Hedge" That's all for another Rude week. Addison will be in soon with the round up from our Baltimore desk. Check back in a few hours for your issue of the 5-Minute Forecast. Aidaa Ewe from Estonia, Joel Bowman
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