- Home ownership falls to a decade-low as stocks soar and gold dives,
- Seven specific recommendations from the Vancouver conference,
- Plus, Bill Bonner on the battle of the 'flations and plenty more...
Chris Mayer's Special Situations Presents...
"The Biggest Resource Breakthrough Since the 'Beaumont Miracle' of 1901"
64 publicly traded companies are already deeply invested...insiders are already raking in as much as $205,421 per day on the shares...
But only one of these cutting-edge companies offers you the "secret wealth advantage" I reveal today...
 |
| Joel Bowman |
Dow up...gold down. That's been the micro-trend over the past few days. The 30 bluest chips are up about 400 points since last Thursday. The Midas metal, having suffered a $21 selloff since this time yesterday, is down to around $1,160 an ounce.
At first glance, it would appear that things are looking up for the world's most indebted economy. People are selling their catastrophe insurance - gold - and freeing up a bit of cash to take to the casino - stocks. But as our fellow reckoners already know, things are not always as they seem.
For the impossibly trendy youth here in "the O.C." - where your editor is an impossibly uncool observer - the words "sick" and "dank" are employed to describe favorable outcomes or conditions. "You missed it, dude. The waves were sick/dank," one might say in reference to a particularly enjoyable session in the surf. Conversely, the word "beat" is used to express one's disapproval, as in, "Mrs. Thompson's algebra class was, like, totally beat."
Similarly misleading, a "beat" economy occasionally produces "sick" short-term stock market rallies. While this may appear to be a good thing, however, the result over the long term may end being far more "beat" than "dank."
In other words, sound markets need sound economic fundamentals. Sick economies make for sick markets, however one chooses to define the word. So just how sick is the underlying economy, then?
One report, hot off the press this morning, tells us that home ownership in the US fell to its lowest level in a decade during the last quarter. The number of vacant properties - including foreclosures, residences for sale and vacation homes - rose from 18.6 million in the year-earlier quarter to 18.9 million, according to figures released by the US Census Bureau. And there's plenty more to come down the pipes, too. Data compiled by Irvine-based RealtyTrac Inc. suggests foreclosures will top the 1 million mark this year. 269,962 US homes were seized in the second quarter alone, an all-time record.
Accordingly, consumer confidence is languishing around 5-month lows. Bloomberg has the details:
The Conference Board's confidence index fell to 50.4 from a revised 54.3 in June, figures from the New York-based private research group showed today. The gauge was forecast to drop to 51, according the median estimate in a Bloomberg News survey.Of course, it's hard to be optimistic about consumption - which reportedly accounts for 70% of the US economy - when consumers don't have any money. The same report showed income expectations at their lowest in over a year. The proportion of respondents who expect their incomes to rise over the coming six months fell to 10%, the lowest reading since April 2009.
"An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects," Ben Bernanke explained last week. According to the Fed Chairman, it'll take a "significant" amount of time to restore the almost 8.5 million jobs lost in 2008 and 2009.
In the meantime, worries over deflation are beginning to find their way into even the mainest-stream press.
"Eyes Turn to the Danger of Deflation," announced a headline on the front page of yesterday's Los Angeles Times.
"...increasingly, economists and other analysts are expressing concern that the US could be edging closer to a different problem - the kind of deflationary trap that cost Japan more than a decade of growth and economic progress," the paper reported.
Consumer prices have declined during each of the last 3 months. The core inflation rate - which excludes food and energy items - has fallen to a 44-year low of 0.9%, well below the Fed's target rate of 1.5-2%.
Bill Bonner, who has more on the ongoing battle of the 'flations below, outlined his 7-point case for "soft-core deflationism" in yesterday's issue:
1) There is no recovery; there won't ever be a recoveryTime will tell which prediction is the dankest of all but, for now, we'll just have to wait and see.
2) The de-leveraging period will be longer and harder than people
expect...leading to spells of deflation and double...triple...dipping 3) The feds will fight it with every weapon available
4) However, they will not push the 'nuclear button' - wanton, reckless money printing - until the bond market cracks
5) It will not crack soon, because the feds are incompetent; they will not succeed in getting higher rates of inflation; at least, not soon.
6) The dollar will remain strong. Bonds will go up...for now...
7) The Dow will fall...but not below 1,000...probably not below 5,000
In today's guest essay, resident value maven, Chris Mayer, offers seven investment ideas to help you ride out the coming/ongoing storm. Please enjoy...
Here's Why The Experts at Weiss Research Expect Even More This Year... Every person and every nation is clamoring to get their piece of the natural resource pie. They're desperate for fuel. They absolutely MUST have water. And for ultimate security, they rush to gold and silver. Which is why the experts at Weiss Research have been busy hand- selecting natural resource companies that not only have the ability to surge in value in the months ahead, but that also pay out big fat cash streams to investors right now! Click here to learn how YOU can potentially profit from the red-hot natural resource market! |
 |
| Chris Mayer |
I'm back from the Agora Financial Investment Symposium in Vancouver. As usual, this great event offered a diverse mix of ideas. Doom seemed to prevail often enough, with many speakers calling for a healthy drop in the stock market and challenging economic times ahead. Even so, there was plenty of enthusiasm for certain ideas. More about which, below...
One of the pleasures of being in Vancouver is getting The Globe and Mail delivered to your room every morning. It's a good paper, and with Canada's resource-based economy, it tends to carry worthy stories on what's happening in the resource sector. More than a few caught my eye, as they covered areas I've been watching of late.
For instance, there was a story about how Canadian companies are becoming increasingly active in Colombia. There has been something of a resource boom down there, as the country enjoys some stability. There are 17 listed Canadian companies with a presence in Colombia. The lure is the untapped oil reserves. There hasn't been much exploration in 50 years. Already, Colombia is the third-largest South American producer of oil after Venezuela and Brazil. Oil is its biggest export.
I have a Colombian oil company I've been researching as a possible recommendation. Either way, I'll share with you what I've learned about the opportunities unfolding in Colombia.
There was another fascinating story about how Canada ships more and more of its oil to Asia, in particular China. Currently, one ship leaves every month carrying 600,000 barrels of crude oil. That's a trickle, but Canada's two biggest pipeline companies are looking to lay pipe and ship massive amounts of oil to Vancouver, en route ultimately to China.
The appeal of Canada's oil sands has improved mightily over just the last 12 months. For one thing, the troubles in the Gulf and deep-water drilling make land sources of oil look a lot less risky. Secondly, China's appetite for crude oil continues to grow. (Last week, the IEA reported China is now the world's largest energy user, surpassing the US.) And now this: new pipelines.
The pipelines do two things. One, they lessen Canada's dependence on the US, which has been murmuring about greenhouse gas legislation. Such legislation would make it more difficult for Canada's oil sands to find buyers in the US. Secondly, the pipeline companies actually make more money selling to Asia. Enbridge says it can earn $2-3 more per barrel selling to the Chinese. At 550,000 barrels a day - the estimate for one pipeline - that's a lot of extra cash.
I'm looking over a small heavy oil player in Canada that appears to trade at a deep discount to its underlying assets.
Another story that caught my eye was about wheat. I don't know if you've noticed, but wheat prices are up a third in just the last six weeks. The main culprit is too much rain or too little rain in Russia, Europe and Western Canada. So wheat prices are flying.
It seems like just two months ago, everybody was chipper about having bumper crops in all the grains. Now weather has suddenly gotten bad and wheat is up a third. You never know anything about crop prices until they hit the bin.
Longer term, though, we know we're going to need to grow more food. There are many ways to get there - fertilizer, irrigation, new acreage, etc.
Returning to the Vancouver conference, many of the most compelling investment ideas featured investments in oil, emerging markets, agriculture and water. My friend Rick Rule, a great resource investor and speculator, put in some bullish words for potash and water. He mentioned a few different "water plays" like PICO and Limoneira (LMNR).
In my presentation, I encouraged people to invest overseas. I also talked about the growing bulge of new consumers in emerging markets. Finally, I put in some kind words for farmland and agricultural markets.
In my workshop, I talked about a few specific stocks. The general idea was to present some stocks that did not require you to have much of an opinion about the economy. Lots of people hold tightly to such opinions. I asked how many people thought we would have a double-dip recession in the next two years. Almost everyone's hand went up. No one thought we'd avoid that fate.
Then I asked how many people had no idea. A few hands went up. Honest people, I say. I don't have any idea either. It's something that's unknowable. There are too many shifting variables. A strong conviction on a double dip is like having a strong conviction about next month's weather. It's a tough call.
But you don't really have to know the answer to the double-dip question to invest well. Too often, people think that a poor economy makes for a bad investing environment. But that's not always true. It depends on prices. Right now there are some interesting bargains out there.
Anyway, four of the stocks I mentioned are existing recommendations from Capital & Crisis:
Gulfport Energy (NASDAQ:GPOR) - An oil and gas company based in Louisiana. Besides solid producing assets in the US, it owns 131,000 net acres of oil sands in Canada via an investment in Grizzly Oil Sands. Recent transactions support valuations of $3,000-14,000 per acre. In per share terms, that's $9-42 per share for Gulfport, which trades for only $13.50. It's a stock greatly skewed to the upside with lots of asset value supporting the current stock price.
Loews Corp. (NYSE:L) - A conglomerate with interests in three publicly traded companies: Diamond Offshore, Boardwalk Pipeline and CNA Financial. The value of its stake in these three alone equals the stock price. You get the reset of the company free, which includes cash, HighMount (a natural gas company) and other investments. Total net asset value is $50 per share easy. The stock is $37.
FEMSA (NYSE:FMX) - A Mexican blue chip with interests in two publicly traded companies: Coca-Cola FEMSA and Heineken. FMX owns the third business outright. It is OXXO, a chain of convenience stores. The implied valuation for OXXO is about half publicly traded comparables. Net asset value for FMX is close to $60 per share. The stock is only $46.
Foster Wheeler (NASDAQ:FWLT) - A large engineering and construction firm. FWLT is flat-out cheap, trading at an earnings multiple of only 5-6 times net of cash. The stock is more than 70% off its high. The business is picking up again, yet the market values it as if earnings are about to fall off the table.
I could've gone on to mention more. But really, I don't think you have to have a positive view of the economy to own these names, which provide ready discounts to assets and/or potential earnings.
And I would urge all investors to continue seeking out the kinds of stocks that can deliver strong returns, even if the economy simply muddles along.
Chris Mayer,
for The Daily Reckoning
Joel's Note: To grab the complete CD/MP3 recording of Chris' Vancouver presentation, along with those from Doug Casey, Bill Bonner, Rick Rule and more, see here. To grab a trial membership to Chris' premium Mayer's Special Situations research service for only $1, see here.
Wealth REVELATIONS 20:10 The Lame Will Walk Again... The Blind Will See Again... The Sick Will Be Healthy Again... The Old Will Be Young Again... The Obese Will Be Thin Again... Four tiny companies strive to make these miracles a reality - and could make you richer than you ever dreamed. This could be the largest wealth explosion since the dawn of computers. For a chance to make the quickest profits, you must act today. |
 |
| Bill Bonner |
As we were saying yesterday, there are several schools of thought regarding the present economy.
1) We're recovering... (Geithner, Summers, et al)And then, there's the solitary Daily Reckoning home-school view:
2) We're not recovering...we're headed into inflation (Faber, Stansberry, Casey)
3) We're not recovering...we're headed into hard-core deflation (Prechter, Shilling)
We're not recovering...we're headed into soft-core, Japanese-style deflation.
Who's right?
You will recognize our point of view as the same thing we were saying 10 years ago. Of course, we changed our mind about it - more or less - once or twice in the intervening years. After the big build-up of debt in the mid-00s, we didn't think the US could afford a long, soft, slow de-leveraging a la Japan. The Japanese had savings...and a positive trade balance. They could afford an order on-again, off-again recession...while their government squandered the savings of an entire generation.
But the US has a huge negative trade balance...and little in the way of savings. How could it survive a Japan-style slump?
Well, things evolve...and our views evolve with them... And in this case, they've evolved right back to where they were in the first place. Savings rates are going up. Most other governments - other than the USA - are making an effort to reduce their reliance on borrowing. This leaves enough money available to finance US deficits - not indefinitely, but perhaps for a year or two more...maybe even for 5 or 10 years.
Could we be wrong about this? You bet. Should you bet your future on it? No sirreee...
But we're probably right...
The following item will seem like we're changing the subject. Au contraire. It was reported in The Globe and Mail that the Irish have gone back to exporting what they export best - people.
You'll recall that the late, much-regretted boom had completely transformed the Emerald Isle. All of a sudden, the Irish were the richest people in Europe (based on the value of their houses, mostly)...and hundreds of thousands of Poles and other immigrants were streaming into Ireland in order to find work.
Practically all the waitresses and barmaids in Dublin seemed to have an Eastern European accent. And there was even a Polish-language TV station. Can you believe it?
But then came the bust. Suddenly, the Irish had to come back down to the bog. The jobs disappeared. Housing prices fell (though not yet as much as you'd expect). And the immigrants began to go home.
Along with the immigrants were many native-born Irish too,
Yes, "The Irish Exodus" has resumed, reports The Globe and Mail.
"Hundreds of thousands of immigrants used to flock to Ireland, looking for work at the door of Europe's strongest economy. But after two decades and a stunning collapse, Ireland is once again a nation of emigrants, seeking employment elsewhere to escape the sad reality at home."
Oh well, it was bad while it lasted. Now, the Irish can give up property development and go back to poetry and alcohol. The country may not be as prosperous, but it will surely be prettier.
Seventy thousand people are expected to leave the island this year. By 2015, the total is expected to rise to 200,000, if unemployment trends continue.
Where are they going? Canada. New Zealand. Australia. No mention was made of the USA.
But what is most interesting to us is the story behind the story. Ireland is not only the European nation the farthest out to the West. It is also the one the farthest out in front in the fight against deficit spending. While others dilly-dallied, Ireland cut. It bailed out its big banks...and then had to protect its own credit. But despite deep cuts, the deficit remains stubbornly high. At 11% it is in line with the US, which hasn't made any effort to cut at all.
What went wrong?
It appears that the neo-Keynesians Krugman and Wolf are right about at least one thing. Cutting government spending while the private sector is de-leveraging is a hard way to go. (In our opinion, it is the right way to go...but that's another issue!)
What happens is that as the feds cut back it reduces income to the private sector, which is itself in cutback mode. This then causes tax revenues to fall - which increases the deficit...
You end up with a vicious cycle of cuts, deficits and more cuts...which doesn't worry us...but the feds don't like it. And the public doesn't care for it much either. Better to wait until the private sector has finished de-leveraging, say most experts.
Of course, then you are only building up public sector debt - which will have to be repaid sometime. You are also wasting resources - forever - making people absolutely poorer than they otherwise would be.
But we're going to let it slide, today.
The point we are reaching for is that de-leveraging isn't easy. It's like growing old. That's not easy either. Still, it's better than the alternative.
And as for which of the views is correct - recovery, inflation, hard deflation or soft deflation - we'll just have to wait to find out.
And more thoughts...
We took two of our sons with us to Vancouver. It was a long, expensive trip. But the boys found some discount tickets and seemed sincerely interested in what we were doing there. You never know what will make an impression on teenaged boys. Maybe one would want to join the family business? Maybe one would take an interest in finance or economics...a fallback, in case they can't find more respectable careers.
They got to meet our friends. They got to hear economists. Stock analysts. Commodity experts. Geologists. Stock promoters. Medical research scientists.
It was a good introduction to the world of investment...and to the strange world in which their father lives...
"Well, what do you think?" we asked them.
"I don't know Dad," said Henry, 19, "everybody is just guessing. Nobody knows anything. I think I'll stick with medicine."
"How about you, Edward?"
"I want to do something where I can earn a lot of money without really working very hard."
"I'm not sure that is a good approach," we replied.
But Edward voiced an interest in geology, following a class trip to New Mexico. So, we went to see Rick Rule, a geologist, for advice.
"Well, there are two types of geologist," Rick explained. "There are the rock hounds, who just love rocks. And there are the alchemists, who turn rocks into money.
"And when there's a real bull market in the mining sector they don't even need rocks. All they have to do is claim to be looking for rocks and they can turn paper into money."
"Sweet," said Edward.
Regards,
Posts
