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The Daily Reckoning | Tuesday, August 31, 2010 What the market giveth, the market soon taketh away, One sector of the American economy worth getting behind, Plus, Bill Bonner on the Bernanke Flop, unwanted credit and China's government-sized dilemma... ------------------------------------------------------- This Little English-Speaking Nation Could Be Escape And Safe Haven For Both You And Your Money Among adventure enthusiasts, a certain low-key country has always been popular for its reefs, ruins, rivers, and rain forests. Today, it's also one of the top offshore, asset-protection, tax, and banking havens in the world. Word is getting out...and savvy, independent thinkers are seeking safety and freedom in this beautiful and affordable Caribbean nation. Learn how to join them here. Distrusting the Strength of the US Economy Consumer confidence declines in the give and take markets Eric Fry Reporting from Laguna Beach, California... The market giveth and the market taketh away. Last Friday, the Dow Jones industrial Average gaveth 165 points. Yesterday, the Dow tooketh 141 points away. What should we investors learneth from this occurrence? Should we trust that the economy is recovering, as the politicians pretend to believe? Or should we distrust that the economy is recovering, as most of the rest of us believe? Let the reader decide, but before deciding, let the reader consider that almost every indicator of US economic vitality is showing a complete lack thereof. For example, the Conference Board's Consumer Confidence Index, which declined sharply in June and modestly in July, is likely to have dipped further in August. By the time you read this column the results will be known. The Consumer Confidence Index now stands at 50.4, which is down from 54.3 in June. But more tellingly, the Expectations Index has dropped to 66.6 from 72.7 in June. A lower reading seems likely for August. And this is just one of the many indications that an economic malaise is sweeping across the 50 States. But even if this particular index stays where it is, or even registers a modest increase, the general outlook remains grim. As a nation, we've got too much debt, too little productive enterprise, too much regulatory oppression and too little entrepreneurial incentive. And yet...and yet...we Americans still find a way to make a buck. We still find a way to excel in certain ventures. One of the ventures in which we excel best is agriculture. We know how to grow stuff...and we grow lots of it. Forward-looking investors should bear this thought in mind, as Chris Mayer explains in the column below... Hidden Gov't Documents Let You Predict Stock Moves Imagine what you could do with this intelligence... Roger Barnes of Colorado used one of these hidden documents to bank $237,000 in just 6 days... It's all perfectly legal and you can do this too! Click here to watch the new presentation now. The Daily Reckoning Presents The Best Way to Bet on America Chris Mayer There is lots of ugly economic news out there, but one key bright spot is world trade. In the US, one particular industry will enjoy windfall profits from exports this year. That industry is agriculture. In 2009, world trade took a big hit in the wake of the financial crisis. Global exports fell 12%. Governments tried to protect their home teams and a wave of tariffs and other protectionist measures followed. This was what happened during the Great Depression, too, as the Smoot-Hawley Tariff Act raised tariffs on more than 900 goods. As a result, world trade sank by 25% during the early years of the Great Depression. But that hasn't happened this time around. In fact, the emerging economies of the world are already exporting and importing more than they were before the 2008 crisis. In the US, a big winner is agriculture. US farmers are looking at record exports of $14 billion this year. The heat wave frying European crops (in particular Russian crops) helps that. But even before the drought, in just the first four months of the year, the US enjoyed a $4 billion trade surplus in agriculture. For years, the US has been the world's largest exporter of corn, wheat and soybeans. It is a leading exporter of many other agricultural goods. Today, US farmers are cashing in on demand from emerging markets, particularly Asia. China has been trying to build self-sufficiency in food. But it has a long list of hurdles, chiefly a shrinking supply of arable land and water shortages. Also, the median Chinese farm is less than one acre. This hinders the economies of scale that come from big farms. In any event, US farmers are sending more and more goods to the Far East. So perhaps it is no surprise that first US grain export depot built in 25 years is not on the rim of the Gulf of Mexico, but on the Columbus River in Washington state, about 60 miles from the Pacific Ocean. The new Port of Longview grain terminal will handle 8 million tonnes a year. (The Port of Louisiana is the still the top grain export hub in North America, although California recently passed Louisiana as the top point of departure for US cotton.) We'll need more depots like the new Port of Longview. American infrastructure has had a hard time keeping up with surging ag exports. Outside of Seattle, for instance, 80 rail cars filled with dried peas sat for three weeks on the train tracks waiting for a ship to unload them. It's not an isolated example. A soybean exporter in, say, Minnesota, could normally ship 40 tons of beans to Malaysia in 15-20 days. With recent bottlenecks, it took 60 days. There are plenty of stories of everything from hazelnuts to soybeans tied up in shipping bottlenecks for weeks. The US isn't used to such export strength. As The Wall Street Journal noted, "America's trading infrastructure grew imbalanced, with a huge capacity to import goods but an attenuated capacity to export them. Loads of grain or corrugated paper leaving the US took a back seat to the DVDs and toys coming in." That's the problem. For too long, the US economy has been all about overindulged consumers. There were too many stores selling too much junk, too many houses people couldn't afford and too much debt on all of it. This part of the economy grew to grotesque proportions, stimulated by easy credit. But underneath it all, there is still the old world of making things. In my last issue of Capital & Crisis, I wrote about the surprising strength of American manufacturing. American agriculture is also a bright star in the US firmament and an appealing place to invest. The future of American agriculture is very bright indeed, as a recent report from the FAO makes very clear. You can find the report, entitled "How to Feed the World in 2050," right here. This excerpt from the report sums up the investment case: Even if total demand for food and feed grows more slowly [over the next 40 years], just satisfying the expected food and feed demand will require a substantial increase of global food production of 70% by 2050, involving an additional quantity of nearly 1 billion tonnes of cereals and 200 million tons of meat. In addition to the usual assortment of resource issues such as water and soil and climate change, there are some topics you wouldn't think of otherwise, such as biodiversity. Take a look at this: The gene pool in plant and animal genetic resources and in the natural ecosystems which breeders need as options for future selection is diminishing rapidly. A dozen species of animals provide 90% of the animal protein consumed globally and just four crop species provide half of plant-based calories in the human diet. I won't highlight too much of this report, because I'd be repeating myself. If you've read my observations for the last year or so, you know all you need to know about what's happening in the world's market for food. Still, if you need an overview, the FAO's report covers most of the issues. Farmers with windfall profits will have more money to expand production next year. That's more money for things such as seed and tractors and fertilizers. As long as its export markets remain open, US farmers should have a great year. As a long-term investment, Lindsay (NYSE:LNN) should benefit as farmers spend some of that money on irrigation equipment. The economics are attractive, as the machinery significantly boosts yields and makes more efficient use of water. I also like the non-US ag plays, because high crop prices and the rising demand for food bode well for agriculture around the globe. In Canada, Viterra (TSX:VT) is a good long-term holding. It should rebound after excessive rains in Western Canada hurt grain production. In China, Migao (TSX:MGO), makes fertilizers for high-end crops such as fruits, vegetables and tobacco. It's growing capacity, and as the financials reflect the additions, it should report good earnings. Those are just a few. There are plenty more. The business of producing food should continue be a good one. Chris Mayer, for The Daily Reckoning Joel's Note: Want eight (8) of Chris Mayer's best China plays? You can grab them all for just $1 in his Special Situations research report. No gimmicks. No tricks. Just eight stock tips for a buck. You can't beat that. Details Here. Free Presentation Reveals - Government Retirement About to Belly-Flop Government-sponsored retirement is a myth. It's a great, big magic trick. Starting September 30, the government "safety net" officially begins to shrink. The smartest folks are getting ready now... For details - watch this shocking new presentation. Inside, you'll also learn how to collect thousands of dollars each year in "pension checks" from the government's "other" retirement program. You owe it to your future to watch this new presentation. To do so, simply turn on your speakers and click here. Bill Bonner Healthy Correction or Ailing Recovery? Bill Bonner Reckoning from Paris, France... Bad day for stocks, yesterday. A bad day. Not a terrible day. Not a crash day. Just a bad day. The Dow fell 140 points. This was baaaad...because it shows that the stock market does not really buy Bernanke's storyline. You'll recall that when we left off last week, Ben Bernanke assured the world that while the recovery was not exactly what he had hoped for, he nevertheless had the situation in hand. He said he had the tools necessary to fix the problem and would do whatever was required. The initial reaction was positive. The Dow rose more than 160 points on Friday. Some analysts thought the market's downward trend had been broken. But it needed follow-through on Monday. Instead, the market fell. The fact is, there is no recovery...and no recovery is possible...and investors are beginning to realize it. Then what is going on? A "Great Recession," say some analysts. A "depression," say others. There is a good article in The Financial Times that helps understand what is really going on. It's by Ken Rogoff and Carmen Reinhart; you've heard of them before, dear reader. They are the ones who researched dozens of episodes of financial crisis and sovereign default throughout history. Today, they write in the FT about what happens after a financial crisis. Well, what do you think? Do you think you get a "recovery"? Do things go back to normal? Is the recession over quickly and painlessly? Not at all. Instead, there is rarely anything you would recognize as a "recovery." Things do not go back to normal because they weren't normal before the crisis. Crises are caused by abnormal conditions - usually too much credit, too much debt, too much spending and too much speculating. Then, when the bubble blows up, it typically takes a long time for the economy to get back on its feet. Over the following ten years, unemployment usually stays higher than it was before the crisis. Growth rates are usually lower. And ten years after a blow-up in real estate house prices are still usually BELOW where they were when the crisis hit. But what if the feds really get on the ball and try to turn things around? Then, watch out! We read an article on dying yesterday. Here's a question for you, dear reader. Would you rather live in a recessionary economy or die in a booming one? We'll take the recession. Probably most people would. Heck, make it a depression. There are a lot of illnesses for which there are no cures. Still, people will spend a fortune...and endure unspeakable treatments...in the hopes that they will be the one in a thousand who survives. So too are people ready to believe that Dr. Bernanke can cure what ails the US economy. We don't think so. Because we don't think the economy is "sick." We think it is healthy...and finally correcting the mistakes of the Bubble Epoque. Leading economists and the feds have believed, for example, that there was some problem of "liquidity" that was temporarily blocking the flow of cash and credit. They believed the problem could be solved by making more money available. That was why the Fed bought an extra $1.4 trillion of the banking sector's suspicious "assets." They wanted to make sure the banks had money to lend. Well, now the banks have plenty of cash. Businesses too have record holdings of cash. Even households are rebuilding their cash accounts. But who's borrowing? Who's spending? Who's buying new houses, for example? (New house sales are currently taking place at the slowest rate ever measured.) CNN: "Credit if finally available, but no one wants it." And more thoughts... Why don't people borrow? Because it's not a liquidity problem. It's a debt problem. A solvency problem. And it won't go away by making more cash and credit available. Instead, all those bad decisions, bad loans, and bad investments have to be cleaned up. And that takes time. And while the economy is de- leveraging, people are becoming more cautious...more risk-averse...more modest in their expectations. What do Rogoff and Reinhart say about governments' efforts to fix these problems? What does history show? They say the feds often make the situation worse. Not only do governments typically pour bad money after good, they also disrupt the process of correction. Insolvent banks are kept alive. Big businesses that ought to go broke and be sold off are instead propped up...the lights are kept on by government subsidies, preventing new competitors from occupying the space. Consumers and investors keep waiting for the promised "recovery"...for the cure...for the fix. Instead of quickly adjusting to the new circumstances, they delay...they hesitate...they postpone unpleasant changes. They might quickly sell a house at a loss, for example. They could then go on with their lives. But when they hear the feds tell them they have a new program in the works...or a new stimulus bill in Congress...or new action by the Fed...what are they supposed to think? "Maybe I should wait and see if this new effort does the trick..." they say to themselves. "I'll feel like a real fool if I sell now and then the feds get a new bull market going." "Maybe I should wait before accepting a job at a lower salary; it says in the paper that the economy should recover by summer..." The economic setbacks of the 19th century were sharp, but fairly short, affairs. The contribution of modern economics has been to stretch them out and make them worse. *** How about China? Won't growth in China and the other BRICs lead the whole world out of its funk? We wouldn't count on it. First, the Chinese economy has been growing at near double-digit rates for the last ten years. It didn't stop the crisis and so far it hasn't helped the developed nations - at least the US - get out of it. More important, China is probably getting itself into a big mess too. All we know is what we read in the paper on the subject. But what we read is that the spectacular growth China has enjoyed so far was made possible by freeing the private sector. But now the Chinese government is muscling the entrepreneurs out of the way. "Now...it is state-run Chinese companies that are on the march," says The New York Times. Railroads, mining, airlines, manufacturing, hotels, yogurt... The Chinese government either owns it, controls it, or invests in it. And if you think private investors make mistakes, you should see what the government does! A Daily Reckoning dictum: people make mistakes all the time; but if you want to make a real mess of things, you need taxpayer support. Regards, Bill Bonner, for The Daily Reckoning