A Year of Reckoning London, EnglandThursday, February 7, 2008 – Chinese New Year
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*** It all comes down to fear and greed...even great companies with unbeatable brands are going down...
*** Home prices are getting softer and softer...even at these prices, gold still looks like a good thing to hang on to...
*** More pain in our future...‘global disruptions’ cause the BOE to cut rates...and more!
--- Special Offer ---
Retire Happy – and Wealthy
A secret $2.5 trillion government-backed ‘investment fund’ could erase the “retirement worries” of millions of weary investors...
There’s just one catch: Only a few “lifeboat stocks” will benefit. Wouldn’t you like to know which ones? Find out here...
The “Retirement Recovery” Strategy
---------------------
“Fear rules credit markets,” Bloomberg quotes a source at Goldman.
“Corporate loan market is reeling,” adds the Wall Street Journal . The WSJ does not mean ‘reeling’ in the sense of the Virginia reel...or of a Scottish reel...but reeling like a boxer who has just been hit by a haymaker.
In the battle between greed and fear – the latter seems to be landing the hard punches. Deflation is winning – not inflation...Mr. Market – not the market manipulators. Bust, not boom.
But let us back up to where we left off yesterday.
Were you paying attention, dear reader? We hope so.
Yesterday, we noted that Americans had misunderstood what capitalism is. It is not a system that makes people rich. It is only a context, in which people CAN get rich, if they do the right thing. It is a moral context, in which virtue is rewarded and error is punished. Given misleading signals by their financial authorities, Americans made a big error – they spent too much and saved too little. Now they are being punished for it, even while the feds tell them that they were doing the right thing all along...and that they’re going to get more money and credit so they can continue doing it.
But nature – whom capitalism allows to express herself – will have her way. Nature wants to correct the errors of the past five years, at least. Maybe she wants to correct the errors of the last 25 years...we don’t know. But she’s got a switch in her hand, and we’re staying out of her way!
Yesterday, the Dow went down a further 65 points. Even great companies, with unbeatable brands are going down. Harley Davidson, for example, is off more than 20%.
And now, it appears to us that Americans are learning their lesson. They are finally downsizing...cutting back...making do. Soon, we predict, we will read that they are saving more money. ‘Thrift’ will make a come back.
“More homeowners walking away,” says CNNMoney .
There’s even a website to help them – walkaway.com. It tells homeowners how to walk from their mortgages, but stay in their houses. That’s right, it tells them that they can live in their houses for ‘up to 8 months’ without paying their mortgages...and after announcing to their mortgage holder that they have no intention of making any further payments.
Nice deal for them. But not nice for the lenders. That’s why there’s so much fear in the credit market. They’re afraid they may never see their money again. By they time they get the family out of the house and put it on the market, for example, the house price could be well below the loan amount.
Even at the top end, house prices are getting softer and softer. Forbes reports that Hollywood celebrity Ed McMahon has cut the price of his Beverly Hills house three times, from the $7.7 million he asked in July ’06 down to $5.7 million today. Guns ‘N’ Roses guitarist Slash bought his house in Hollywood Hills for $6.2 million; he sold it last month for $5.8 million.
Toll Bros. announced its seventh straight drop in quarterly income.
And analysts are saying that the coming recession (maybe it is already here) will be “worse than recent downturns.”
It will be a “Year of Reckoning,” says a Wall Street Journal headline. Hey wait, that’s our line!
*** While deflation is landing most of the solid blows, inflation gets a jab in now and then. Yesterday gold rose $14.70 to over $905. The CRB rose to 506...and wheat cracked the $10 a bushel mark.
Our guess has been that if deflation takes down stocks, property and other assets...it will leave gold RELATIVELY unharmed. Because, though the feds’ efforts to counter deflation won’t really help the economy very much...they should light a fire under the yellow metal. On the other hand, if the feds were able to revive the boom, the inflationary pressures would probably drive gold up more than stocks. Sell stocks on rallies, we concluded. Buy gold on dips.
In any event, gold still looks like a good thing to hold onto – even over $900. It’s gone up nearly 30%/year for the last six years. The bull market probably has a ways to go.
We’ve been telling you of a way to get gold out of the ground for just a penny per ounce for a while now – and the offer is still good. Don’t miss out...this could be the cheapest (and yet most profitable) to get in on gold’s rise. See here for all the details:
Buy Gold With Your Pocket Change
*** There is a fair amount of talk in the financial press about how a recession might be not be in the cards...or how it might already be over. Stock markets around the world are down 10% to 20%. U.S. housing is down 10% or so. “The bad news is already all out there,” say the optimists. Then, they look at the banks and the builders and they think they see a bottom.
It could be, of course. You never know. But, the financial world badly needs correction. Housing prices rose 70% from ‘97 to ‘07. They should go down more than 10%. Stocks rose more than 1,100% from ‘82 to ‘07. You’d expect something more than a 10% give-back. And the 27-year credit expansion itself was the biggest the world has ever seen. You’d think it would be followed by more than six months of nervous headlines.
“I have a feeling there’s more pain in our future,” says our own Short Fuse this morning. “Just look at all the data that’s out today. Every time I check my inbox, I have another MarketWatch update. Here are just a few:
“‘Wal-Mart’s January sales come in soft’...looks like the thrifty are getting thriftier.
“‘Pending Home Sales Fall 1.5% in December.’
“‘Bank of England cuts key rate a quarter-point to 5.25% as ‘global disruptions’ continue’
“Hmm...I wonder what part of the globe these disruptions are coming from....”
*** With so much trouble in the northern latitudes, we’re beginning to look to the tropics for opportunity (more tomorrow). Our colleague in Buenos Aires, Horacio Pozzo, thinks he has spotted an opportunity – in Colombian coal. “Snowstorms in China (which is having its worst winter in 50 years), floods in Queensland, Australia, and energy problems in South African have affected the output of coal in these three countries, the world’s major producers of this fossil fuel, and provoked a record price last Friday,” he writes.
China counts on coal for nearly 70% of its energy, says Horacio. It’s the world’s leading producer...and its leading consumer. The country has had so much trouble getting enough coal to the right place at the right time, it has had to ration energy in 13 provinces, according to China Daily . In 2007, China was an exporter of coal. This year, it looks as though it will have to import 15 million tons.
Naturally, the price of coal has already reacted – up 73% in 2007. And, all of a sudden, the old, dirty business of coal mining has become much more profitable. Who will be the beneficiaries? Horacio is looking at Colombia. Coal exports from Colombia are known to be low in pollutants and high in energy. In 2006, Colombia was the 6th largest exporter of coal worldwide. Of course, the country has major infrastructure limitations. It will take a while to boost its exports considerably. But Chinese demand doesn’t seem to be slowing down and experts see the price of a ton of coal rising to $100 sometime in the near future. Colombian producers can take those kind of figures to the bank...
[Ed. Note: ¿Habla español? ¿Quiere ganar dinero?
Latin America is booming. And our colleagues in Buenos Aires, Argentina are well placed to help you profit from the many value opportunities south of the border. They have launched an email report service entitled Informe Moneyweek that covers both Latin American and international investment opportunities. It’s written daily in Spanish by South American market experts, Horacio Pozzo and Paola Pecora. If this is something you would be interested in, I encourage you to click here ....and by the way, it’s free!
*** Meanwhile, Byron King sees the whole world running low. Oil production is peaking out. American power is peaking out too – as primary industries leave on the Orient Express.
As goes America’s industrial might...and its credit...so goes its ability to protect itself, says Bryon:
“Our politicians and societal elite seem to believe that a strong house-building industry, knocking up McMansions from sea to shining sea, is a reflection of a robust economy and powerful, forward-looking culture. Somehow it is OK to neglect the upstream economy of primary extraction, milling, manufacturing and fabrication. They truly believe that just because the Fed can print money by the yard, then as a nation we can always buy our way out of any bad situation. Apparently they are so far removed from any understanding of physical scarcity that they cannot conceive of just not being able to accomplish something.”
Scarcity is something that Byron understands quite well – especially when it comes to oil.
Everyday, the world consumes more oil than it produces. The oil left in the ground is getting scarce, harder to find and extract and far more precious than in the past. Simple economics tells us that when supply is reduced, prices will rise.
Until tomorrow,
Bill BonnerThe Daily Reckoning
---------------------
*** It all comes down to fear and greed...even great companies with unbeatable brands are going down...
*** Home prices are getting softer and softer...even at these prices, gold still looks like a good thing to hang on to...
*** More pain in our future...‘global disruptions’ cause the BOE to cut rates...and more!
--- Special Offer ---
Retire Happy – and Wealthy
A secret $2.5 trillion government-backed ‘investment fund’ could erase the “retirement worries” of millions of weary investors...
There’s just one catch: Only a few “lifeboat stocks” will benefit. Wouldn’t you like to know which ones? Find out here...
The “Retirement Recovery” Strategy
---------------------
“Fear rules credit markets,” Bloomberg quotes a source at Goldman.
“Corporate loan market is reeling,” adds the Wall Street Journal . The WSJ does not mean ‘reeling’ in the sense of the Virginia reel...or of a Scottish reel...but reeling like a boxer who has just been hit by a haymaker.
In the battle between greed and fear – the latter seems to be landing the hard punches. Deflation is winning – not inflation...Mr. Market – not the market manipulators. Bust, not boom.
But let us back up to where we left off yesterday.
Were you paying attention, dear reader? We hope so.
Yesterday, we noted that Americans had misunderstood what capitalism is. It is not a system that makes people rich. It is only a context, in which people CAN get rich, if they do the right thing. It is a moral context, in which virtue is rewarded and error is punished. Given misleading signals by their financial authorities, Americans made a big error – they spent too much and saved too little. Now they are being punished for it, even while the feds tell them that they were doing the right thing all along...and that they’re going to get more money and credit so they can continue doing it.
But nature – whom capitalism allows to express herself – will have her way. Nature wants to correct the errors of the past five years, at least. Maybe she wants to correct the errors of the last 25 years...we don’t know. But she’s got a switch in her hand, and we’re staying out of her way!
Yesterday, the Dow went down a further 65 points. Even great companies, with unbeatable brands are going down. Harley Davidson, for example, is off more than 20%.
And now, it appears to us that Americans are learning their lesson. They are finally downsizing...cutting back...making do. Soon, we predict, we will read that they are saving more money. ‘Thrift’ will make a come back.
“More homeowners walking away,” says CNNMoney .
There’s even a website to help them – walkaway.com. It tells homeowners how to walk from their mortgages, but stay in their houses. That’s right, it tells them that they can live in their houses for ‘up to 8 months’ without paying their mortgages...and after announcing to their mortgage holder that they have no intention of making any further payments.
Nice deal for them. But not nice for the lenders. That’s why there’s so much fear in the credit market. They’re afraid they may never see their money again. By they time they get the family out of the house and put it on the market, for example, the house price could be well below the loan amount.
Even at the top end, house prices are getting softer and softer. Forbes reports that Hollywood celebrity Ed McMahon has cut the price of his Beverly Hills house three times, from the $7.7 million he asked in July ’06 down to $5.7 million today. Guns ‘N’ Roses guitarist Slash bought his house in Hollywood Hills for $6.2 million; he sold it last month for $5.8 million.
Toll Bros. announced its seventh straight drop in quarterly income.
And analysts are saying that the coming recession (maybe it is already here) will be “worse than recent downturns.”
It will be a “Year of Reckoning,” says a Wall Street Journal headline. Hey wait, that’s our line!
*** While deflation is landing most of the solid blows, inflation gets a jab in now and then. Yesterday gold rose $14.70 to over $905. The CRB rose to 506...and wheat cracked the $10 a bushel mark.
Our guess has been that if deflation takes down stocks, property and other assets...it will leave gold RELATIVELY unharmed. Because, though the feds’ efforts to counter deflation won’t really help the economy very much...they should light a fire under the yellow metal. On the other hand, if the feds were able to revive the boom, the inflationary pressures would probably drive gold up more than stocks. Sell stocks on rallies, we concluded. Buy gold on dips.
In any event, gold still looks like a good thing to hold onto – even over $900. It’s gone up nearly 30%/year for the last six years. The bull market probably has a ways to go.
We’ve been telling you of a way to get gold out of the ground for just a penny per ounce for a while now – and the offer is still good. Don’t miss out...this could be the cheapest (and yet most profitable) to get in on gold’s rise. See here for all the details:
Buy Gold With Your Pocket Change
*** There is a fair amount of talk in the financial press about how a recession might be not be in the cards...or how it might already be over. Stock markets around the world are down 10% to 20%. U.S. housing is down 10% or so. “The bad news is already all out there,” say the optimists. Then, they look at the banks and the builders and they think they see a bottom.
It could be, of course. You never know. But, the financial world badly needs correction. Housing prices rose 70% from ‘97 to ‘07. They should go down more than 10%. Stocks rose more than 1,100% from ‘82 to ‘07. You’d expect something more than a 10% give-back. And the 27-year credit expansion itself was the biggest the world has ever seen. You’d think it would be followed by more than six months of nervous headlines.
“I have a feeling there’s more pain in our future,” says our own Short Fuse this morning. “Just look at all the data that’s out today. Every time I check my inbox, I have another MarketWatch update. Here are just a few:
“‘Wal-Mart’s January sales come in soft’...looks like the thrifty are getting thriftier.
“‘Pending Home Sales Fall 1.5% in December.’
“‘Bank of England cuts key rate a quarter-point to 5.25% as ‘global disruptions’ continue’
“Hmm...I wonder what part of the globe these disruptions are coming from....”
*** With so much trouble in the northern latitudes, we’re beginning to look to the tropics for opportunity (more tomorrow). Our colleague in Buenos Aires, Horacio Pozzo, thinks he has spotted an opportunity – in Colombian coal. “Snowstorms in China (which is having its worst winter in 50 years), floods in Queensland, Australia, and energy problems in South African have affected the output of coal in these three countries, the world’s major producers of this fossil fuel, and provoked a record price last Friday,” he writes.
China counts on coal for nearly 70% of its energy, says Horacio. It’s the world’s leading producer...and its leading consumer. The country has had so much trouble getting enough coal to the right place at the right time, it has had to ration energy in 13 provinces, according to China Daily . In 2007, China was an exporter of coal. This year, it looks as though it will have to import 15 million tons.
Naturally, the price of coal has already reacted – up 73% in 2007. And, all of a sudden, the old, dirty business of coal mining has become much more profitable. Who will be the beneficiaries? Horacio is looking at Colombia. Coal exports from Colombia are known to be low in pollutants and high in energy. In 2006, Colombia was the 6th largest exporter of coal worldwide. Of course, the country has major infrastructure limitations. It will take a while to boost its exports considerably. But Chinese demand doesn’t seem to be slowing down and experts see the price of a ton of coal rising to $100 sometime in the near future. Colombian producers can take those kind of figures to the bank...
[Ed. Note: ¿Habla español? ¿Quiere ganar dinero?
Latin America is booming. And our colleagues in Buenos Aires, Argentina are well placed to help you profit from the many value opportunities south of the border. They have launched an email report service entitled Informe Moneyweek that covers both Latin American and international investment opportunities. It’s written daily in Spanish by South American market experts, Horacio Pozzo and Paola Pecora. If this is something you would be interested in, I encourage you to click here ....and by the way, it’s free!
*** Meanwhile, Byron King sees the whole world running low. Oil production is peaking out. American power is peaking out too – as primary industries leave on the Orient Express.
As goes America’s industrial might...and its credit...so goes its ability to protect itself, says Bryon:
“Our politicians and societal elite seem to believe that a strong house-building industry, knocking up McMansions from sea to shining sea, is a reflection of a robust economy and powerful, forward-looking culture. Somehow it is OK to neglect the upstream economy of primary extraction, milling, manufacturing and fabrication. They truly believe that just because the Fed can print money by the yard, then as a nation we can always buy our way out of any bad situation. Apparently they are so far removed from any understanding of physical scarcity that they cannot conceive of just not being able to accomplish something.”
Scarcity is something that Byron understands quite well – especially when it comes to oil.
Everyday, the world consumes more oil than it produces. The oil left in the ground is getting scarce, harder to find and extract and far more precious than in the past. Simple economics tells us that when supply is reduced, prices will rise.
Until tomorrow,
Bill BonnerThe Daily Reckoning
posted by Read All Books @ 8:33 PM
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