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The Daily Reckoning | Thursday, March 31, 2011 Back to South America's Future: Investing in Brazil...fifteen years ago, The weakness in North America and what "Revpar" has to do with it, Plus, Bill Bonner on how the Fed's are re-flating the rich folks' bubble and plenty more... ------------------------------------------------------- Urgent Offer Ends TODAY at 5PM! March 2011: From a noted expert with 30 years of research experience... "The biggest story since the Gutenberg printing press..." It could build fortunes. It could crush old orthodoxies. It could make the fastest-movers into epic-scale tycoons. And it starts right here. Today. You may have just one chance to act on this glorious new wealth revolution. Click Here to Find Out Why... *** Offer Must Close Thursday, March 31st ...and promptly at 5PM... ------------------------------------------------------- Special Ed. Note: Our web team has raced to get today's issue in your hands BEFORE 5PM (please check the time...), for the simple reason that the opportunity you see above (the opportunity to grab our "6 Stocks for Right Now" report) MUST close at 5PM today. If you DO receive this issue before the 5PM deadline, please click on this link to review the opportunity BEFORE proceeding with your regular reading. Time is of the essence here as we simply cannot extend this offer. Again, here's the link. It will be deactivated promptly at 5 PM. And now, back to your regular reckoning... Inflation vs. Income Why Consumer Spending is Down Despite Economic Upticks Eric Fry Reporting from Laguna Beach, California... Today's issue of The Daily Reckoning finds a resurgent US stock market. Despite dipping - briefly - into the red for the year-to-date a couple weeks ago, the S&P 500 is closing out the first quarter with a gain of 6%! Despite the noteworthy stresses around the globe - and the considerable economic uncertainties here at home - the S&P sits less than one percent below its peak levels of the last two-and-a-half years. So the stock market's doing pretty darn well. The US consumer...not so much. The chart below, for example, looks nothing like the ascendant price chart of the S&P 500 Index. Consumer spending, apart from spending on essentials like food and gasoline, is sluggish at best. A chart of disposable income, after taxes and inflation, would look equally dismal. In other words, despite some measurable upticks in economic activity, these upticks are failing to bear much fruit down at the level where real people earn and spend money. Inflation is chewing up almost all the statistical economic gains of the last several months. Even though incomes are rising somewhat, inflation is rising just as quickly...which means that net wealth is going nowhere. Perhaps that's why companies like Marriott International are posting disappointing earnings results. Earlier this week, Marriott disclosed that its "revenue per available room" (Revpar) will be lower than originally forecast, due to weakness in North American demand. International revenue remains "robust" however, according to Marriott. Perhaps this "weakness in North America" is a one-off or perhaps it is a sign of things to come. Whatever the case, the contrast between the sluggish growth rates of the world's Developed Markets and the robust growth rates of the world's Emerging Markets is very real...and this contrast is becoming a staple of the global investment environment. That's why Chris Mayer, editor of Capital & Crisis, tirelessly explores the world's Emerging and "Frontier" Markets - searching for opportunities that do not exist in investment destinations like New York and London. Chris recently returned from a trip to Colombia. He spent time in Bogotá and Medellin - meeting with a variety investment contacts...as well as 22 different companies involved in oil, banking, cement, communications and more. Chris liked what he saw... "One-Week Options" That Could Show Up to 1,329% In on Monday. Out by Friday. Every single time. Gains can run to 369%, 545%, 1,329% - maybe even higher. Get the chance to start booking gains like these for yourself right here... The Daily Reckoning Presents Welcome to Colombia! Chris Mayer "Would you invest in Brazil 15 years ago if you had the chance?" our Colombian host asked me one night, in an effort to frame the opportunity here. "Of course, that would've been a home run," I said. "Welcome to Colombia." We were sitting in a comfortable restaurant in Medellin's downtown area. Medellin is a pretty city that spills out across a river valley and creeps up the walls of the surrounding mountains. Medellin's nickname is the City of Eternal Spring, thanks to its temperate weather. If you have an image of Medellin (and Colombia) as a violent place, a visit here would change your opinion. We could have been in any number of cities around the world. I never felt unsafe. (As with any city, there are good and bad areas.) The bars and restaurants were full at night. The skyline was lit with tall buildings. The sidewalks busy with people. It was not always so, as Medellin was once a notoriously dangerous city. Security issues have been a huge problem in Colombia's past, but it is much improved, and most of the remaining issues are deep in the jungles, near the porous borders with Venezuela or Ecuador. (In fact, while we were here, rebels snatched 23 Talisman workers doing seismic work near the Venezuelan border. Even these occurrences, however, are now rare.) Today, Colombia is a young and growing emerging market that has a lot of catching up to do - and that is the core of the investment opportunity here. For example, one day, we visited Cementos Argos, the largest cement company in Colombia, with a 51% market share. It is an asset-rich company. In addition to its cement operations, Argos owns a huge land bank of 5,000 hectares and a portfolio with stakes in three other listed Colombian companies worth $3.3 billion and 600 million tons of coal reserves. We met with Ricardo Andres Sierra, the CFO, who told us in the bad old days, plants could work only from 6 a.m. to 6 p.m. And there were parts of the country where the company simply did not go. But today, the plants run 24/7. "We can go wherever we want," he said. Argos has a huge opportunity in Colombia. As is often the case when a boom arrives, the building of the infrastructure to support the boom comes later. Colombia is way behind in infrastructure. It needs miles and miles of roads. It needs bigger ports, expanded airports and railroads. This has been a recurring theme on our trip, something we heard everyone mention. Sierra gave us an arresting statistic. He said Colombia consumes about 220 kilograms of cement per capita annually, compared to 500 kilograms for Vietnam. The point being that Colombia is well below the consumption rates of comparable developing economies. There is lots of room to grow. We talked about new road projects, such as Ruta del Sol, which will connect Bogota, the capital in the Andes, with Santa Marta, a port city on the Caribbean Sea. We talked about the Cartagena Refinery expansion. Both are huge projects, "as big as the Panama Canal expansion," Sierra said. There is also a tunnel project that will connect Bogota to the Pacific port at Buenaventura. There are projects for hydropower plants, bus systems, pipelines and much more. "Infrastructure is the key to growth in Colombia, that's for sure," Sierra ventured. This has also been one of the surprises of the trip. We had heard and read, of course, about the relative lack of good infrastructure in Colombia. But it is another thing to be down here and see it firsthand. Traffic in Bogota, for example, is impossible - or nearly so. The roads are choked with small cars that go nowhere fast. It seems to take forever to go even short distances. One of our contacts here told us that Colombia has only 300 kilometers of two-lane two-way roads. The government knows this, and there is a lot of money slotted for infrastructure development in the coming years. Argos is in a great position to profit from the build-out of Colombia's infrastructure. So infrastructure is one of the big investment themes we've found here. Another is oil, which is not surprising, as oil makes up 40% of Colombia's exports and is one of the headline-grabbing investment stories in Colombia. The years of violence in the country hampered exploration and development of Colombia's oil assets. The easing of security issues has brought back the oil companies in a big way. Also, Hugo Chavez has chased out a lot of the talented oilmen from Venezuela. Many came to Colombia and used their expertise in heavy oil to tap Colombia's rich Llanos Basin, in the east, which shares a similar geology with Venezuela's prolific fields. What may surprise you is just how quickly it's all happened. Much of the acreage is already locked up. When new blocks come up for bid, they are heavily contested. We met with Charles Gamba, president and CEO of Canacol Energy. He told us there were 67 bidders on their latest block. This industry is developing very, very quickly. In 2003, Colombia licensed only 4% of its available acreage. Today, that's 60%. So there are several companies here that have stocked up an enviable portfolio of prospects to explore. And oil and gas will be an important driver of Colombia's economy for years to come as it develops further. In any case, there are, as in any market at any time, opportunities. And there are certainly opportunities here. Stay tuned! Regards, Chris Mayer, for The Daily Reckoning Joel's Note: Fans of Chris's writing and investing style alike may appreciate his review of Adam Fergusson's book When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. The review has been making its way around the office of late...and for good reason. When Money Dies is, as Chris points out, particularly relevant today for the very simple reason that we are heading down an eerily similar path to what led to the monetary catastrophe in Germany back in the '20s. The lessons of the book are clear...which is why we want to get a copy of it in as many hands as possible. To that end, Agora Financial is giving away free copies of the book, along with access to Chris' unique investment research. This one's a must for the home library. If it sounds like something you might like, feel free to check out Chris' review here. The book the US Congress never wanted you to see... Ron Paul's "Lost" Gold Bible Buried away in secret since late in the last century, this 200-page guide shows you: Why $15,000 gold is likely inevitable, BUT why that's not a GOOD thing for investors... The only REAL way out of our monetary crisis... And a glimpse into the future... when everything BUT the dollar could be used as money... We're spreading the word...and so, until April 6, 2011, you can claim a copy of this long "lost" Gold Bible - Absolutely FREE. Find Out How Here. Bill Bonner The Real Victims of Fed Monetary Policy Bill Bonner Reckoning from Los Angeles, California... Last night, we went to a fancy restaurant in LA. What a place. There were beautiful women. There were sleek young men in Italian suits. And there were men who just looked like they walked out of a lumber camp. More below... Back to the world of money... The Dow went up more than 70 points yesterday. The higher it goes, the more dangerous it becomes. What's the matter with this downturn? Shouldn't it lower stock prices? Shouldn't it empty tables at fancy restaurants? Shouldn't it close down some of these luxury shops and make it easy to upgrade to business class? Nah... The Great Correction is a failure. At least so far. It's correcting only the people at the bottom. Last week, we went shopping for a birthday present. We went around Bethesda, to Bloomingdales...to Saks...even to Tiffany's. In one shoe store there were five middle-aged clerks, ready to help us. How could there be enough profit in a pair of shoes to support so many clerks? Then we found out...when Elizabeth bought a pair. Leaving the store, she picked up the wrong bag... The clerk called her. He offered to meet her to exchange bags. "Just look for me. I'll be in my black Mercedes," he said. What? How can shoe clerks afford Mercedes? Then, we went to Tiffany's, where there were so many Asian customers, the clerks barely gave us the time of day. Everywhere we went we found shockingly high prices - and people paying them. Here in LA too...the numbers show typical families are poorer - thanks largely to falling house prices. But there are still many people at the top...with expensive cars...expensive habits...and the money to keep at it. And despite all the talk of downsizing chic - we don't see much evidence of it. At the upper income levels, there doesn't seem to be much correction happening. And why should there be? The feds give them money. Stocks have recovered most of their losses. Bonds - which should be worthless by now - still trade hands at par. Corporate profits are at record levels. Where's all this money coming from? You guessed it, the feds. But pity the poor lumps at the bottom. The official unemployment rate has gone down...but most of the improvement in the numbers comes from dropping people off the list of those who are looking for work. So, what happened to those who didn't find jobs? They're getting food- stamps (42 million of them at last count). Or, they're living hand to mouth. Many of them have now been out of work for so long they'll probably never work seriously again. In this case, the leftists are right. The feds have re-flated the rich folks' bubble...largely at the expense of the poor. Even Fed governor Thomas Hoenig says so. From Bloomberg: The Federal Reserve's "highly accommodative" monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon. "Once again, there are signs that the world is building new economic imbalances and inflationary impulses," Hoenig, the central bank's longest-serving policy maker and lone dissenter at meetings last year, said in a speech today in London. "The longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth." Those "inflationary impulses" are making it hard for the middle classes to make ends meet. Hershey's is raising prices 10%. At least it's being honest about it. A New York Times article tells us that many consumer brands are passing along "stealth inflation" by reducing sizes or lowering quality. You go to the grocery story. You're given opportunities to buy new "healthy" items - smaller, and more expensive. Or they are "green" - which makes you think that maybe they are better for the environment in some way. What they are for sure is more expensive. Not that we blame the companies. They're caught in a squeeze too. The Fed has driven up prices for their raw materials. Sugar, wheat, cotton, oil - almost all their costs are higher. The big exception is labor. The cost of employing people has barely budged. Too bad. Because customers are also employees. If they don't earn more in wages, how can they keep up with the inflationary cost increases? And more thoughts... Neil Barofsky has given up his job as chief auditor of the TARP stimulus program. He had this to say about how the program worked: "The basic idea of a well-run government program is to have clear goals; have a plan to meet those goals; measure progress along the way against those goals; change your program when necessary so you can still achieve those goals." But that's not how it worked at TARP. Instead, the modus operandi: "Set goals. Ignore goals entirely. Hope for the best. When the best is different, change your goals, and say you never really meant it when you had those goals. Pretend that the program is a success even though it is not meeting those goals." Just what you'd expect, in other words. *** This must be the latest style. Or maybe it's an LA thing. The "boulevardiers" are dressing up like working men. They're wearing clothes...and beards...that make them look like real men. We saw one young man in a railroad cap - something we haven't seen in years. He also had on a pair of steel-toed work boots. We were having dinner at a fancy restaurant in Hollywood, with two of the most beautiful women in LA. One was our own daughter. The other, her friend, an Australian actress. "Acting isn't all glamour," the girl from Down Under explained. She's come to LA to broaden her career, she says, after completing filming of a new TV series in England, called Camelot. "It's pretty miserable some times. And it's not all about being the center of attention. In fact, it's surprisingly lonely some times. I go to do a film. Unless I have a major role, I'll only be there for a few days. And then, I do my part...and spend the rest of the time in the trailer. It's not very nice, really. "And on low-budget projects, you never know what they'll want you to do. I did one film in England. It was all very improvisational. We had to make it up as we went along. And most of the filming was at night, because it was a horror movie - naturally. "A lot of the shooting was outside too. And it was below freezing. In one scene, I had to cross a river...and almost drown. My clothes were literally freezing when I got out of the water... and, remember, it was the middle of the night. "And then, the director said he didn't like it. He wanted to do it again. So, I did it again. But this time, I almost really did drown. They had to pull me out of the river...and I went into shock and nearly died." Regards, Bill Bonner for The Daily Reckoning Joel's Note: "Long suffering" Dear Readers rejoice! Bill's NEW BOOK just hit the virtual shelves! Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. It's a "Best of Bonner," if you will...along with new material that gives context to his very best columns. Readers will recognize the usual topics of interest, including such favorites as war, government waste, attacks on Alan Greenspan and Team "Hanky & Bernanke," zombie attacks, bailouts, tales from the ranch, backin' it with bullion, a smattering of debt, and a few requiems. The book is due to hit the actual shelves on April 3...but we're giving it a nudge over the weekend online. So, if you would like to grab yourself a copy, do so here. ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com