The Eyes of the World on One Economist?

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The Daily Reckoning | Saturday, August 27, 2011 With "expert" thinking like this, who needs idiots? The world tunes in to listen to one man and his money-printing machine, Plus, all the past week's reckonings, neatly archived for you and your sons to enjoy... ------------------------------------------------------- URGENT Crisis Alert: Where's the Bottom of this Market Correction? Trillions in wealth has vanished from the stock market in the past month. Europe's on the brink of economic collapse. China's growth is slowing down. Making matters worse, banks around the world scramble to avoid complete failure (again!) And the US public has finally stood up to years of reckless federal spending... How do you beat it all? Watch this right now for the answer. Hurry — time is short. The Eyes of the World on One Economist? Joel Bowman Checking in from Buenos Aires, Argentina... Yesterday the world heard from a man. More important, perhaps, than what the man said — or even what he didn’t — was surely the fact that we were listening at all. The whole world, listening to one man, one...economist. Our peculiar orb, third from the sun, is indeed a crowded place. Billions of humans roam the planet, their individual decisions, and the resulting transactions, are, right now, crossing wires and changing hands in every known reach, from mountaintop to desert floor. The whim of one...the folly of another...the desire and yearning of those we will never meet, never know. One will spend the morning fetching water for the family...another the afternoon under an old oak with a dog-eared novel. Another cries on bended knee, pleading to his Lord...while his neighbor heads to the mall...or seduces his pretty wife. We are many, and our decisions and desires still more. A lot of people. A lot of decisions. A lot of eyes and ears on one man, one...economist. How did it come to this? How can this one man possibly know what is best for the water gatherer, the reader, the helplessly sincere and the sincerely wretched? How does he know which button to press, which lever to pull? How does he know his machine even works at all? And, more importantly, how can we take any of it seriously? “The weight of the whole world’s illusions on those weasely shoulders,” wrote Bill in yesterday’s reckoning. “An honest man would shrug.” In this week’s feature column, Chris Mayer provides some light- hearted relief from the circus of self-absorbed fixers outside. So switch off the television...turn down the radio...sit back and have a laugh at it all... [This week’s feature column, a version of a speech Chris made in Vancouver last month, originally appeared in these pages on Thursday, August 25th.] The Daily Reckoning Presents You Can't Make This Stuff Up Chris Mayer In today’s column, I’d like to share with you a few ideas I presented at the recent Agora Financial Investment Symposium in a speech titled You Can’t Make This Stuff Up. I called it that because it’s hard to fathom serious people writing lines like this: The renewed willingness and confidence to spend money we don’t have is vital to the continuing recovery. That gem comes from The New York Times. Unfortunately, it reflects a common opinion. When I read stuff like that, I think we are truly doomed. I mean, is this really that hard? Spending money we don’t have is what got us into this mess in the first place! The US debt ceiling fiasco makes that clear. The US is bleeding money. Every month requires huge amounts of financing just to keep the lights on. So far, creditors have been generous in extending ever-greater loans to the US — by buying its debt — at very low interest rates. It clearly can’t go on forever. When the game stops, you can say goodbye to whatever fragile recovery we’ve enjoyed since 2008 and expect rates to rise. Rising interest rates are death to equities, simply because as rates rise, investors demand a greater incentive to own stocks. Remember, everything in the market competes with everything else for the affection of investors. To see how this works, look back to 1982. Then you could earn 15% on a Treasury bond. No wonder the price-to-earnings ratio of the entire Dow Jones industrial average fell to just 7 times in 1982. (The current ratio is about 14 times.) That was a bleak time, too, with a deep recession, bank troubles and raging inflation rates. Our time is troubled too, and the value of the US dollar has taken a beating. Yet we have this from BCA Research, a highbrow firm for which people pay tens of thousands of dollars to receive analysis like this: A weakening US dollar has served the economy extremely well: It has helped trigger an export boom, inflate corporate earnings, lift stock prices and avoid deflation — all without costing anything. Yes, a free lunch! All we have to do is destroy our currency and we’ll be rich. It’s worked for Argentina and Zimbabwe, too, right? Of course not. Yet this idea persists, like a rash that won’t go away. But this extends beyond the US. The fact is most of the world’s Western governments are broke. As governments reach to make ends meet, it will come out of the hide of the private sector. For many of these governments, the situation is desperate. Another gem: The Russian finance minister told the Russian people they should drink and smoke more to help boost tax revenues. “People should understand,” he said. “Those who drink, those who smoke are doing more to help the state.” And the Irish finance minister said his ministry is considering selling T-shirts that read, “Ireland is not Greece.” As I say, you can’t make this stuff up. Maybe Italy will hold a bake sale to help raise money! Seriously, though, the list of the negatives out there is very long, and I could write this whole issue about them. Of course, outside of these issues, things look great! Let’s let former Fed chief Alan Greenspan sum things up: There is no question that the momentum of this economy, leaving out the oil price issue, leaving out Euro problems that have emerged and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum. Ha! Yes, if only we could leave those things out. Unfortunately, we can’t, because we live in the real world. But the list is longer than Greenspan knows. As I warned in last month’s letter, all is not well in China. It’s starting to slow down. We just got the latest figures for Chinese manufacturers in July, which were lower than June. This marks four months in a row of slowing growth. This is in keeping with the nature of things. There are booms and busts. What is unnatural is how long China has gone without a serious crisis. People seem to take it for granted that China will always be growing, pulling the global economic sleigh through the muddy patches. (Much in the way that people thought housing prices would never go down.) A China contraction is something no one expects. And it would devastate many emerging markets (and even a few developed ones). This is a big concern because the bright spots in the global economy post-crisis were the emerging markets. Many of our best performers were companies with direct exposure to these markets, which allowed them to overcome a sluggish recovery at home and report good earnings. But now China — the biggest driver of these emerging markets and the biggest buyer of a long list of commodities — is having some problems. As it slows, you can already see the ripple effect in some of the other emerging markets. For example, I’ve warned about Brazil and what I called the coming “Caipirinha Crisis.” Brazil’s Bovespa — sort of like a Brazilian Dow Jones industrial average — is 20% off its November high as I write. It’s the first of the world’s 10 largest markets to fall into bear market status since Japan’s nearly did after the tsunami disaster. In fact, as I pen these words, only two of the largest 16 emerging markets are up — South Korea’s Kospi and the Russian MICEX. In developed markets, only Germany’s DAX is positive, excluding the US — which isn’t up by much. A bad week and US markets could easily slip into the red for the year. It’s getting ugly...and could get much uglier. So how we do invest? What do we do in an environment like this? These were the questions I heard most often at the conference. I have some ideas and some strategies, which we’ll develop further in my newsletter, Capital & Crisis, over the next few months. Our analysis may force us to make some changes to our portfolio and our thinking as we adjust to the new realities. It may be hard to do, but the best moves usually are. The good news is that in every market, there are pockets of opportunity. In every market in history (even bad markets), there have been stocks that, looking back, you wish you had bought. In other words, in every crisis there are opportunities waiting to be found. Given the length of this year’s “you can’t make this stuff up” list, a mere fraction of which I’ve shared in this column, I expect we’ll have more such opportunities this time around. Regards, Chris Mayer, for The Daily Reckoning P.S. If you’re not already receiving my Capital & Crisis newsletter, I’d like to invite you onto our email list. From the looks of things, the next few months are going to be tough going in the markets...which should present us with plenty of opportunities, provided we’re patient and know what to look for. If you’re interested in joining us, simply drop your details in here and we’ll see that you’re on the list. My next alert is due out around next Friday. New Presentation: Leading Micro-Cap Stock Expert Reveals Epic Wealth Potential See how just a tiny stake could turn into enough to retire on — in just 30 days. This amazing presentation closes at MIDNIGHT TOMORROW Sun., Aug. 28. Watch it now, right here... ALSO THIS WEEK in The Daily Reckoning... You’re Gonna Need MORE Than Gold... By Simon Black Everyday more and more people are waking up to the idea that they MUST own gold if they want to protect their assets from an out of control government. Owning gold is a great first step, but as history tells us, responsible people can and should do more before it’s too late... The Greatest Trade of All Time By Kevin Bambrough We are of the view that the appetite for sovereign paper promises will continue to decline, and such promises will continue to lose their value relative to real assets, like gold. What needs to be understood is that paper promises (sovereign debt and fiat currencies) are ‘faith-based assets’. They have no inherent value. They have perceived value in that they have historically been convertible into real assets. With their value decreasing against real assets, however, we are of the view that holders of faith-based assets will be increasingly unwilling to store their wealth in them. This will drive up the prices of real assets versus faith-based assets, a process which we have already begun to see en masse. First in Line for New Money By Douglas French The world of high finance was still in full flight in February 2007. The cracks in the mortgage market had not yet begun to show and Stephen Schwarzman’s Blackstone Group had just completed its $39 billion purchase of Equity Office Properties in what was the largest leveraged buyout ever. US Government Asset Seizures on the Rise By Simon Black In the United States, there are hundreds of regulations which authorize dozens federal agencies to confiscate private property — homes, cars, bank accounts, gold, company shares, and even personal effects. Ironically, most Americans still think that they live in a country where you're innocent until proven guilty. Nothing could be further from the truth, and it's just another clear example of how the US Constitution has become a worthless piece of toilet paper for the federal government. Who gives a damn about America’s credit rating? I’m SICK of hearing about Keynesian vs. Austrian, fiat currency vs. Gold, US credit ratings and other BORING economic theories you have ZERO control over. “WHO CARES!?” Truth is, if you want to make money in the markets, none of that stuff even matters! Let me prove it to you by showing you. The Weekly Endnote... And now, a thoughtful email from a Fellow Reckoner to end the week... As with all momentous events, we find ourselves in the ever-so- desperate situation as to explain it to the young, the foolhardy (which was us in yesteryear) and the testeronic armour of the indestructible youth...my son...your sons...my son’s friends and his friends. Some will listen. Some others will listen and learn. Some will think us fools...some will think us old fools...the greatest thorn of fatherhood...the moment when son and company do not see what we see. Ah fatherhood. With all our mistakes and misgivings, our prejudices, our faults, our wrongs, our gargantuan mistakes, we take our hard fought lessons, with salt and despair, our heartfelt pain and yearnings and ask, how can we, who have been part of the Status Quo, say, “No, this is the way of things. You young man listen to me because I know the path,” and the young man responds with, “Well how come you are part of the way of things?” Oh the lashings a father takes, time and time again. “Sons are put on this earth to trouble their fathers.” Never a truer quote... The thing is, as I speak to my son and his friends, I am overwhelmed by their ability to execute conversation. I am intrigued, I am solaced by their acceptance of the exchange of conversation, not being know-all young men, but being effervescent young men, cheeky and full-spirited, which gives any thinking man such delight. After all, it is our souls’ reflection in the humor and sincerity of the wit to which our youngsters joust with us. Tonight I had the urge to speak with the group of youth to which I have become so very fond of, young men of 21 to 30, all with their own rationale, their wonderful youthful wit and barbs and questions. Be it me to think I should tell them the path of uncertainty and remorse of the elders’ sins, their elders’ bad decisions, to be caught against the net of governance and meddling? How do I answer them? I try. I catch their eye for naught but a minute’s silence, endeavoring to enlighten, hearing my own hypocrisy, to reveal truths not revealed to myself at such an age, and expect those truths which I believe to be accepted by young and inexperienced minds. This is the never ending challenge, and with all such discourse, quite often the answer is revealed in all and simple truth after the event...when good looking and much loved young men have travailed through nights’ shadows I am presented with a classic example... Home and reaching for a glass of wine, I watch, again, the classic, “The man who would be King.” Rudyard's brilliant story, with Sean Connery and the superb Michael Caine, Danny and Peachie. All goes well for some time. The duo overachieves in the most unlikely circumstances, and when it appears that they have it made big, Danny has illusions of grandeur. Oh, how easy to be tempted and seduced by the maidens of power and corruption, to believe we are capable of silencing the gods, or corrupting the gods...but only corrupting ourselves as shadows whisper in the night. And so it is with all, governance and blight. Bernanke sharpens his pencil quick, fervors his Jackson spiel and speech of Kings. How is our reflection upon this man’s vision of the gods, via trumpet of Imperator. Ah, as Christ was kissed the traitors speak...who will bite Bernanke’s cheek? Regards, Justin T. --- As always, we welcome your own thoughts, musings and tales from the frontline. Email them to the address below and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com What to Do in the Event of an Out of Control Money System No Place for a Gold Bug The Turns of the Century China: Where Money Is Treated Best Buying Gold on the Price Inflation Guarantee Awaiting the Zero Hour of Available Credit Gold Turns Around and Rallies Currencies Are Mixed and In Tight Ranges Currencies Take Their Turn Beating on the US Dollar The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. 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