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The Daily Reckoning | Wednesday, August 17, 2010 Two stock markets for contrarian investors' careful consideration, The rise of a "multipolar world" ... Beijing to São Paulo and beyond, Plus, Bill Bonner on the contraction of "boomer spending," a troubling dilemma down at the pond, and much more... ------------------------------------------------------- NEW: Have You Heard of the OTHER Government Backed "Pension Program?" It's official - Social Security is heading for broke! But that doesn't mean you should miss out on the retirement you deserve... Most Americans know nothing about this, but a small, savvy group of retirees have been collecting from this OTHER Government backed "pension program" since 1972! Now income specialist Jim Nelson shows how you could too in a brand new presentation. Click here to watch it instantly. Boomer Consumers Reduce Spending. Economy Exhales. Bill Bonner Reckoning today from Ouzilly, France... The Dow was flat yesterday. Gold rose $9 to $1,226. Has the dip in gold already come and gone? We were expecting lower stock prices...and lower gold prices too. Both went down earlier in the summer. But neither went down as much as we expected...nor stayed down. But it's still fairly early in this correction. The recession began at the end of '07. We're now approaching the last quarter of '10. By this time in the '30s, stocks were hitting rock bottom. The market crashed in the autumn of '29...then bounced...and then started down again. It didn't stop until it hit bottom in July of '32 - nearly three years later. By then, stocks had lost nearly 90% of their value, from 381down to 41. It can take longer, however. Japanese stocks crashed in '90. But they didn't hit their ultimate bottom until 2008 - 18 years later - with losses of about 90%. So relax, dear reader. Analysts are talking about a "double dip." They're worried that the economy may slip back into recession in the fourth quarter. There are signs of weakening. GDP growth figures are being revised downward. Consumers aren't spending. Banks aren't lending - except to the federal government. Mortgage payments are falling further behind - even with fixed mortgage interest rates at record lows. So many people are out of work for such a long time that we're seeing more and more "Death of the American Dream" articles. Even lawyers are out of work. Recent law school graduates say they can't find jobs. And the president of all the Americans, Barack Obama, tells us not to "give in to fear." "All we have to fear is fear itself," said Franklin D. Roosevelt. Yes, fear...and 25% unemployment...the Great Depression (made worse by Roosevelt's interventions)...a 27% decline in GDP...the Dust Bowl...the Wehrmacht...and the Imperial Japanese Army! Obama might want to save the fear claptrap until Americans have something to worry about. So far, the correction has only taken 4% off America's GDP and only took the official unemployment rate to 10%. And consumer prices haven't actually gone negative - yet. Don't trouble yourself about it. The economy is in a correction that began in '07 and hasn't stopped. It won't end until it has done its work. That will take time...maybe another 5 years. Maybe another 15 years. Markets have to breathe in and breathe out. This market is exhaling. That's just the way it works. A Wall Street Journal headline: "Another threat to the economy: Boomers cutting back." You see, dear readers, the financial press has no idea of what is really going on. Boomers are cutting back? Of course boomers are cutting back! They're getting ready for retirement. They need to save some money. It was loony to think you could finance your retirement out of the increases in your house's value. Who were you going to sell the house to? Boomers were the biggest buyers of houses. When they turned into the biggest sellers, it was sure to cause trouble. Besides, you gotta live somewhere. Financing your retirement on stock market gains was a bit absurd too. Stocks go up...and down. There was never any guarantee that they would be up at a convenient moment...nor that they would stay up when the boomers all decided to cash out. No, dear reader, you can never count on getting something for nothing. You can't expect to finance your retirement on money you didn't earn. Instead, you need real savings. Saved money. Money you didn't spend. Money set aside. Anything else is just hoping...wishing...praying you get lucky. (Even real savings are not guaranteed. Your money can still be swept away by inflation.) But the problem with the WSJ headline runs much deeper. Financial journalists don't understand what an economy is. Instead, they wallow in the same flattering claptrap as economists. They think the economy is something that is supposed to do their bidding. It's supposed to make us all rich, by growing constantly. If it isn't growing there must be something wrong with it. Something that needs to be fixed by the mechanics at the Fed and the Treasury. You think the economy is "threatened" by boomers cutting back? Not the least bit. It's just breathing in and breathing out. What's the big deal? But economists want to "do something." It's all very well when the boomers spend and the economy expands its broad chest. But when it exhales they rush to put a plastic bag over its head. More thoughts below, after today's essay... And over to Addison Wiggin, from Agora Financial's H.Q. in Baltimore, Maryland... For seven years, we've been conspiring to put together a research advisory service that covers the nexus between money and politics, between Wall Street and Washington. We wanted to cut through the clutter you see from corrupt and polluted research departments at the biggest investment banks on Wall Street to deliver you useful ideas on how to protect and grow your wealth. Now, after seven years, countless hours spent and miles traveled, conferences attended and books written, we're finally ready test the idea of Apogee's high vantage point research again...and we need your help. Details Here... The Daily Reckoning Presents Two of the Cheapest Stock Markets in the World Chris Mayer Every year, I go to the Agora Financial Investment Symposium in Vancouver, both as speaker and attendee. It's jampacked with people from all over the world who gather at the Fairmont Hotel to share ideas. As soon as I walk into that grand old railway hotel, I know there will be some surprises. This year was no different. Ideas were not in short supply, but some ideas were more common than others. More than a few speakers spoke well of gold and oil. Most had dim views of the economy and the stock market. And there were at least a handful whose best ideas hailed from some emerging market. A couple of my favorite ideas came from investors based in Dubai and Moscow. Whole markets rarely go on sale, but here we have two examples of stock markets trading for about 6 times earnings. Peter Cooper is our man in Dubai, as you may remember, and a friend of mine. From his perch in Dubai, he writes an interesting investing newsletter called ArabianMoney. He is also a self-made millionaire who made it in the Middle East. He sold out near the top. But now, Peter says Dubai is a buy again. In fact, Peter says, the whole United Arab Emirates is a buy. Dubai, to help with the geography, is one of the seven emirates that make up the UAE. It had a spectacular boom, festooned with palm-shaped islands, tall towers and a ski resort in the desert. Of course, it all went to pot, as these things do when they get ridiculous. But Dubai and the UAE are not going away. "Dubai is still the trading hub of the Middle East," Peter tells us, "and the UAE is its Switzerland, a safe haven in a troubled region." It still has one of the fastest growing airports in the world, as well as one of the fastest growing and largest marine ports at Jebel Ali. The latter has no rival in the Middle East. And I can tell you from personal experience that the infrastructure in Dubai is world-class. Abu Dhabi is also an incredibly rich place. The per capita wealth is $18 million. That means a family of four is well on its way toward $100 million. Abu Dhabi sits on $3 trillion of proven oil reserves. It has a sovereign wealth fund of over $1 trillion. It has zero debt. As Peter says, "This might be officially classified as a frontier market, but actually, the UAE is more first-world than third-world and has stronger finances than any developed country." So why now? Peter says there are many signs of a bottom. The UAE stock market trades for six times earnings. Big positive announcements have no impact on stock prices. There have been 11 brokers that have closed up shop in 2010, as stock market volume is down 90%. It's the classic example of a bombed-out market in which people have given up. "Even the Swiss bankers are very negative," Peter says, "so you know it's time to buy." As long as oil holds up, the UAE will return. Peter suggests buying the UAE exchange-traded fund from the National Bank of Abu Dhabi. It's easy to buy through an HSBC online trading account. This is a good idea, but a bit of a pain to implement. This next idea, though, is much easier to put in action. Eric Kraus is our man in Moscow, where he is a money manager. We'd only swapped e-mails before, so I was glad to finally meet him in person in Vancouver. I also liked his presentation, which included some surprising ideas on Russia. For instance, of all the ballyhooed BRIC countries - Brazil, Russia, India and China - do you know which market has done the best over the last decade? Russia. Now, lots of people - including your editor, actually - have some worries about investing in Russian companies. They are not paragons of disclosure, for one thing. And we all remember what happened to Yukos, which collapsed in the blink of an eye as the government went after it for political reasons. Our Western sensibilities, though, cloud our vision on Russia, says Kraus. A big part of his message in Vancouver was to say that the Western orthodoxy of free markets, democracy and transparency has little to do with picking winners in the market. The chart above makes that clear. As Kraus puts it, "Ideologically driven disinformation can cost you a fortune." Still, Kraus used a lot of words you don't normally associate with Russia. Kraus describes Russia as "very low risk" with "stable macroeconomics and politics... where reform is going on far faster than Europe, but slower than Asia." Russia is "by far, the wealthiest of the BRIC countries," Kraus says. He called it "a middle-income, moderately high-growth (5%) middle European country with the world's largest resource base." It has abundant oil and gas, but also lots of farmland and fresh water and hydropower. Once one of the world's largest grain importers, it is now a top exporter. (Well, before very recent events...) Russia also has plenty of cash - the world's third largest foreign currency reserves. Poverty has been cut way down. So things actually look pretty good for Russia. "Of course, the Western press hates it!" Kraus says. "If you have a long-term time horizon, Russia is a no- brainer. It is the cheapest stock market in the world, at less than 5 times earnings... Cheaper than Pakistan!" The easiest way to buy Russia is to buy the Market Vectors Russia ETF, which trades under the ticker RSX on the NYSE. Kraus is particularly bullish on Russia not only because it is cheap, but because he believes the price of many commodities will rise. "Peak Oil is a mathematical certainty," he says. Not in the sense that we are going to run out of oil, but that prices will rise as we reach for more expensive sources of oil. "And it's not just oil," he continues. "Grades of copper, and nickel and bauxite ores are now being mined, which no one would have bothered digging up a couple of decades ago... Peak water! A lot of places are running dry, and this will have scary effects upon agricultural prices. "The predominance of the West is an anomaly in history," Kraus goes on. "It ended with the turn of the millennium." It is now a "multipolar world" - in ideas and commodities. Instead of the traditional New York- London axis, the economic world will spin on different poles from Beijing to São Paulo. I think he's right. It will be a far more complex and interesting world over the next several years as the emerging markets emerge. In the meantime, the market offers up two very cheap emerging markets - the UAE and Russia! Chris Mayer, for The Daily Reckoning Joel's Note: One of the best ways to keep abreast of this new and emerging "multipolar world," is to pick up a subscription to Chris' premium research service, Mayer's Special Situations. In this month's issue, just to give you an example, Chris covers breaking developments in half a dozen countries spread across five continents. Right now, you can grab a risk free, one-month trial to Mayer's Special Situations, plus a copy of Chris' latest report, "The New Chinese Middle Class: Eight Tiny Stocks Set to Explode from the Largest Population Trend in History," all for a single dollar. This offer won't last forever. Grab it today. Penny Stock Fortunes Announces... Watch the Presentation: Secret $200 Retirement Blueprint Last year $200 could have turned into $10.1 million following 5 simple steps revealed in this secretive retirement blueprint. It's happened before, but could it happen again and could it happen to you? Click here to watch the presentation now. (Turn your speakers on) Bill Bonner A Small But Troubling Occurrence Down By the Pond Bill Bonner Reckoning from Ouzilly, France... What were they doing down by the pond? Things grew more tense and unsettled around the family home yesterday. "What? They were doing what down at the pond?" We will spare our dear readers' delicate and refined sentiments. But the clan was up to something and Pater Familias didn't like it. "Not someone. Everyone, Dad..." answered our informant. "What... Even Calvert [your author's 64-year-old cousin]?" "No...not Calvert. Not you. Not mom. But everyone else. It's not a big deal." Hmmm... We had a problem. Pater Familias wondered what to do... What to say? Should he try to root out the source of the problem...and send the evildoer into exile? Should he play it cool, and count on the children - now almost all adults - to manage their own affairs? He decided to talk: "This...thing," he began, speaking to his informant. "It may not be a big deal for you. You're an adult. But there are children here too." "Children? They're all over 16. Don't worry about it. It's cool. It's under control..." "Wait a minute. Maybe it isn't a big deal. It's a little deal. But it's not a good deal. Do you understand?" "But Dad, you always gave us all wine at dinner. What's the difference?" "Well, I didn't give you much. I figured it was better for you to get to know it in a civilized, sensible way...rather than by getting drunk at college keg parties. "And remember, we're here to enjoy real life... You can do that anywhere. But you can't be with your family anywhere. You can't talk to your grandmother, for example, anywhere or anytime. You only see her a couple of times a year. And you may not see her again. No one lasts forever. "These days are precious. You're very lucky to have them. You don't want to waste them. You should use them to connect to other members of the family. And to yourself. To figure out who you really are and what you really want..." "Dad... You're making a big deal out of nothing..." Regards, Bill Bonner for The Daily Reckoning