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The Daily Reckoning Thursday, December 10, 2009 They're telling you to buy...but look what these insiders are doing, Why this gigantic Keynesian experiment can only end in tears, Plus, a "severely dislocated" housing market, Brazil's BIG advantage and plenty more... --- The Agora Financial Reserve Closing Soon --- We'll Pay You $5,909 to Cancel Your Agora Financial Subscription Right Now We know it sounds preposterous, but it's true. Not only that... If you act now* you'll receive every one of our elite publications... And that's in addition to the nearly $6 grand we just mentioned. Just give us 10 short minutes out of your day, and we'll explain everything. *The doors to the Agora Financial Reserve are only open a few short weeks out of the year. We suggest you take advantage while you can. --------------------------------------------------------------- Eric Fry, reporting from Laguna Beach, California... If the credit crisis is genuinely over and the economy is genuinely on the mend, someone forgot to notify Capital One Financial, one of America's largest issuers of consumer credit. Yesterday afternoon, at the Goldman Sachs US Financial Services Conference in New York City, Capital One's Chairman and CEO, Richard D. Fairbank, wowed the crowd with a dizzying collection of grim assessments and forecasts. In no particular order, Fairbank observed: 1) "The storm is not over and we continue to face several significant risks." 2) "With respect to commercial real estate, I believe we cannot see line of sight to the peak yet... I kind of feel it's going to get worse before it's better." 3) "The housing market remains severely dislocated." Fairbank placed this last observation in the context of an economy that is still wobbling on its feet and unable to generate employment growth... "Despite last week's modest improvement [in the jobs report]," he observed, "the average time to find a new job remains very high, a sign that the job market is more frozen than in past recessions. Similar to labor markets, the housing sector remains severely dislocated, despite some signs of stabilizing home prices. There is a growing backlog of foreclosures. Inventories of homes in foreclosure or with severely delinquent mortgages are increasing. This is likely to put downward pressure on home prices as the foreclosure inventory hits the market. Continued weakness in housing puts pressure on the broader economy and makes any emerging recovery fragile. And some of the apparent improvements in the economy may not be sustainable. As government stimulus programs like Cash for Clunkers, first-time home buyer tax credits and other direct cash payments to consumers may have only fleeting effects." During his presentation, Fairbank also sprinkled in a few dashes of optimism about the economy's prospects...and several dollops of confidence about Capital One's ability to "weather the storm." Investors seemed to like what they heard, as Capital One's stock jumped more than 2% yesterday afternoon. Curiously, however, the insiders at Capital One cannot seem to find any reason whatsoever to buy the stock. In fact, they have been unloading it at a very rapid clip during the last few months. Fairbank, for his part, has not made a single open market sale since May of 2008. But most of the other company insiders have shown no such restraint. Ryan Schneider, for example, President of the Card division, sold 31,848 shares of COF (worth $1.18) during the last four months, and just announced his intention to sell another 84,518 shares. All totaled, these sales would represent more than half his holdings. Over in the accounting department, CFO Gary Perlin, just sold $2.3 million worth of COF stock, or about one quarter of his holdings. (For perspective, the last time Perlin sold stock was in May of 2007 - less than one month before COF began its swoon from $81 to $8.) The recent flood of insider selling at Capital One is no guarantee that conditions will soon worsen at the large consumer lender. But as a rule of thumb, insiders do not sell when they believe their stock will be going UP. --- The Resource Trader Alert 2009 Results Are In... --- Who Else Wants Their Account To Soar Like This? The Numbers Don't Lie: $3,510 Average Payout per Recommendation 70.1% Average Gain per Recommendation 19 Winners From 24 Recommendations And now, for a limited time, Daily Reckoning readers can grab 6 Free Months of Resource Trader Alert. Details Here. --------------------------------------------------------------- Dan Amoss, the mind behind the Strategic Short Report, gripes: The rallying stock market has got it all wrong. Government spending and the Fed's money printing will not lead to a sustainable recovery in private sector capital spending and deployment. This huge Keynesian experiment will end in tears, and policymakers will be forced to make unpopular decisions - like hike tax rates or cut spending - by the end of 2010. If current policies remain in place, I expect more of a late-1970s environment, in which flight out of paper money and into tangibles was the dominant investment theme. The Fed and Treasury can create new claims (government bonds and paper money) on real assets, but these institutions cannot control how the private sector adjusts to this flood of new claims. If the private sector no longer wants to hold dollar bills or government bonds as aggressively as it used to, we could soon see rising prices in many essential markets - like food and energy. Chris Mayer, Editor of Capital & Crisis, who also anticipates rising food and energy prices over the long-term, believes Brazil is in a great position to benefit: The world continues to deplete its base of arable land. Though it's been going on for some time, the dramatic blows are only now showing their effect. In East and North Africa, in the plains of India all the way to Turkey, the story is the same. Some of it is just human carelessness about the land. Some of it is climate driven: the declining snowmelts of the Himalayas and more frequent crop-killing heat waves in places such as India... China, you may recall, is now the largest net importer of soybeans in the world. A mere 15 years ago, it made more than it needed and exported soybeans. Now India may import rice. Some think that India could import as much as 2 million metric tons, the most in the world. Traditionally, India has been the world's third largest exporter. (It's already banned overseas rice sales in an effort to keep rice at home.) The Philippines, thanks to typhoon damage, will also be a net buyer of rice this year. South America will produce less, and there is potential trouble with the crop in the Mississippi Delta. Yes, Thailand and Vietnam appear to have healthy rice supplies. But it won't be enough. All of this puts Brazil in the catbird seat, as more people are starting to figure out. "Superpower Is Ready to Feed the World," reads a Financial Times headline. You may quibble with the FT's exuberant labeling of Brazil as a superpower. But Brazil is now the top exporter of chicken and beef, orange juice, green coffee, sugar, ethanol, tobacco and the soya complex of beans, meal and oil. It is No. 4 in maize and pork. It is, agriculturally speaking, deserving of the superpower label. [Eric's Note: Chris is not new to the "food story." In fact, for the last three years he has been alerting his subscribers to investment opportunities in the agricultural sector. From fertilizer companies to grain processors to irrigation-equipment manufacturers, Chris has identified numerous market-beating stocks. And he continues to believe that the agricultural sector provides some of the very best investment opportunities available anywhere. So if this outlook makes sense to you, you should check out Capital & Crisis, where Chris presents his leading-edge analysis of investment opportunities in agriculture, water and infrastructure - his favorite sectors for the next 10 years.] --------------------------------------------------------------- The Daily Reckoning PRESENTS: At the beginning of the New Depression, people wondered whether it would be like the old one, of the '30s...or something more Japanese style; a couple of go-nowhere decades, for instance, with no job growth, no savings growth, zero market gains and a terminally flat-lined economy. In today's essay, Bill Bonner wonders all over again about what might be around the corner. Please enjoy... The On-Again, Off-Again Depression by Bill Bonner Johannesburg, South Africa The US stock market is still in "bounce mode." All bounces come to an unhappy end. This will be no exception. If you step back a bit further, you could see it in a different light. Ten years ago, The Daily Reckoning warned of a long, Japan-like slump. Then, the stock market fell and the economy went into a recession. But the downturn didn't last long. And in the bubbly years that followed, our alert was quickly forgotten - especially by us! But now, 10 years have gone by. The S&P 500 has lost 20% of its value during that period. Wages and income are static. And there is not one single more job in America than there was then. It was a "Lost Decade" for the American economy. So get ready... How about a depression that lasts for 20 years? It could be on its way. In December, exactly 20 years ago, Japan's stocks closed at an epic high - 38,957 for the Nikkei 25 index. Last week, that same index closed at 9,977. Readers will quickly note that the Japanese are idiots. Why else would they allow a 20-year bear market? Why else would they permit their economy to slide sideways for nearly an entire generation? Where is the Japanese Bernanke? This is almost the same question we posed readers 10 years go. Except then, we asked: Where is the Japanese Greenspan? Greenspan...Bernanke...it didn't seem to make any difference. American central bankers seemed to have magical powers, at least compared to their Japanese counterparts. They seemed able to succeed where the Japanese failed... American economists mocked the Japanese 10 years ago. But what goes around, comes around... Japanese and American economists go to the same schools. They have the same silly ideas. They are equally incompetent, as near as we can see. And yet, the Japanese have suffered one 'lost decade'...and then another...while Americans went from bubble to bubble.... But, maybe our first idea was right after all. After we warned that the country could follow on Japan's heels...entering a long, soft, slow depression...the Greenspan Fed and the Bush federal government opened up with all cannons. They blasted away on both fiscal and monetary fronts...ending up with the biggest barrage of stimulus the world had ever seen. And what happened? They inflated another bubble...bigger and more dangerous than any before it. Now, that bubble too has blown up. And now we look around. Once again, the Bernanke/Obama team is firing every gun; just as the Greenspan/Bush team did in the early 2000s...only more of them. But this time, the volleys are not having the same effect. Even though asset markets are bubbling up as hoped, the depression won't go away. Unemployment is over 10% and still increasing. This is not another "jobless recovery" like the one in 2002-2003. This is no recovery at all. Then, we look back at the last 10 years. What do we see? Instead of making economic progress, we see a nation making economic mistakes. And, under the leadership of the Obama/Bernanke/Geithner team...they're still making mistakes. The same mistakes. Only bigger ones. And so we have to wonder... Maybe the next decade will be 'lost' too. Stocks have gone nowhere for the last 10 years, but they are still expensive. On average, they sell for 50% more than the long-term average P/E. Usually, when they are this high, the next generation produces piddly gains. Could it be that, 10 years from now, we will look back without having added a single dollar of net return? Yes...it is quite possible. Likely even. That will mean a total of 20 years with no profit for stock market investors. Which would serve them right. You'll recall, perhaps, that at the end of the '90s it was widely advertised that the surest, simplest road to riches was the stock market. The Dow was supposed to go to 36,000, according to one well-publicized forecast. All you had to do was 'buy and hold.' You'd get rich for sure. Of course, it doesn't work that way. As soon as investors all come to think the same thing the only sure thing is that what they all think is balderdash. Well...then...what do they think now? As near as we can see they believe two contradictory things. On the one hand, everyone says the dollar is doomed. On the other hand, they all seem to want dollar-denominated US Treasury bonds. But actions speak louder than words. They may talk about the end of the dollar; but that is what they still own. And that is what they're still buying - via US Treasuries. So...we want to be short US Treasuries for the next 10 to 20 years. But wait. Isn't it too soon? Ah, there's the rub. Treasuries seem to be approaching a major peak. Maybe they are there already. Maybe they aren't. "What bothers me is that we still haven't had that other major leg down in the stock market," we told colleagues Issy Bacher and Dan Denning today. "It's not natural for a bear to take a chunk out of asset prices...and then just go away. Typically, the assets bounce back...and then the bear takes another chunk out of them. "Since we haven't had that next leg down...we have to assume it's still ahead. But investors seem totally unprepared for it. When it comes, they're going to panic. They're going to sell shares all over the world. And they're going to seek safety...where? They're probably going to turn to US Treasury bonds. Treasuries will go up, not down... "Now the funny thing is that moving to Treasury bonds will help the US government finance its deficits...and possibly stretch out the depression for years. As long as the dollar is in jeopardy, the feds are in danger. They might not be able to finance their deficits. Which means, foreigners...and investors generally...could walk away from the dollar at any time. That would cause a major crisis. If the feds couldn't finance the deficit with borrowed money...they'd be forced to print it...causing hyperinflation. "As long as they can finance it, on the other hand...we could face a long depression. "That's the risk that no one is paying attention to...and no one is prepared for. That's why it seems like the most likely outcome. A long, slow, on-again, off-again depression...just like we forecast 10 years ago." Regards, Bill Bonner, for The Daily Reckoning --- Outstanding Investments Special Metals Report --- From Hulbert's #1 Ranked Advisory Letter Over a Five-Year Period... Even if Gold hits $2,000 by the end of this year... Here's a hidden way you can get in for less than one cent per ounce Over the next two years, you'll witness the greatest surge in gold prices in market history - at least 119% above where gold sits today, as I write this. But even better, I've just discovered a way for you to sneak into the soaring gold market for next to nothing, with what I call "penny-per- ounce" gold. That is, doing this is a "backdoor" way to own as much of a position in gold as you like... for the equivalent of paying a single cent per ounce.   The Daily Reckoning - Special Reports: The US Trade Deficit: Fort Sumter...And The U.S. Trade Deficit US Recession: By far the Weakest Recovery "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down as the BIGGEST FINANCIAL SWINDLE in world history.