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The Daily Reckoning | Friday, February 17, 2012 What do Argentine steaks, Brazilian cowboys and beach volleyball have to do with investing? Getting used to lower incomes, higher unemployment and fewer benefits, Plus, Bill Bonner on the world of finance, the trouble with paradise and plenty more... ------------------------------------------------------ World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY! How to Continue Living Beyond Your Means The Role of Youth Unemployment in Staving Off Default Bill Bonner Reckoning today from Rancho Santana, Nicaragua... The trouble with paradise... “Who would have thought,” said a colleague yesterday. “We got here, what, 15 years ago, there was nothing...nothing.” “Nothing...but paradise,” we replied. “Well, now it’s even better. You’re never satisfied. Now we have a paradise with houses...swimming pools...and even a convention center. It’s a paradise that people can enjoy.” “I enjoyed it more when we had it all to ourselves,” we countered. More...below...first, let us cast our eyes over the world of finance... The headlines still focus on Greece. It is broke. Here is Lucas Papademos, describing what an orderly default would mean. In the Telegraph: “The savings of the citizens would be at risk. The state would be unable to pay salaries, pensions, and cover basic functions, such as hospitals and schools, and...the country — public and private sector alike — would lose all access to borrowing and liquidity would shrink. “The living standards of Greeks would collapse. The country would drift into a long spiral of recession, instability, unemployment and prolonged misery. These developments would lead, sooner or later, to exit from the euro.” Sounds good to us! The Greeks have been living beyond their means. Living standards must fall. Best to get on with it. But the efforts of a whole class of over-paid meddlers have been directed at trying to avoid this outcome. They’ve hesitated...prevaricated...vacillated...and generally fornicated up the situation. They’ve swept so much dirt under the rug that there’s now an Everest in the middle of the room... It can no longer be ignored. But Greece isn’t the only country to live beyond its means. And the Greeks aren’t the only ones to suffer. In Britain, the economy is holding its own...but only by loading the young with debt in order to continue supporting the old in the style to which they’ve become accustomed. Here, The New York Times reports: Perhaps the most debilitating consequence of the euro zone’s economic downturn and its debt-driven austerity crusade has been the soaring rate of youth unemployment. Spain’s jobless rate for people ages 16 to 24 is approaching 50 percent. Greece’s is 48 percent, and Portugal’s and Italy’s, 30 percent. Here in Britain, the rate is 22.3 percent, the highest since such data began being collected in 1992. (The comparable rate for Americans is 18 percent.) Classified by statisticians as NEETs (not in education, employment or training), they number about 1.3 million, or one of every five 16-to-24-year-olds in the country. Lower incomes...unemployment...fewer benefits... Get used to it. There have always been booms and busts. There were years of good harvests...and years of bad ones. The prudent farmer saved some grain...just in case. But in the 20th century real money — gold — was replaced by paper money and ‘just in case’ became ‘just in time.’ Even John Maynard Keynes, the architect of modern government meddling in the economy, suggested that governments should save money so they would have something to spend when the private sector cut back. But the feds didn’t save. They spent. And when times got tough, they spent even more money. Trouble is, without savings, they had to borrow the money to spend...which means taking it out of the very economy that is short on money already. The only other option is to print up extra money — in effect, creating it ‘out of thin air.’ But if you could just print ‘money’ and make yourself better off, everyone would do it. People are not made richer just by printing up pieces of paper with green ink on them. They get richer by having real purchasing power...and real resources at their command...and by being able to produce goods and services that people want. Only 62 People Know Exactly Why These Four Companies Could Change the World Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as the story of our era. Click here for all the details. The Daily Reckoning Presents “Supranational” Investing AddisonWiggin Some of the very best Argentine steak houses are in Amsterdam, some of America’s very best rodeo cowboys are Brazilian and some of the world’s very best beach volleyball courts are high in the Swiss Alps. The “cosmopolitanization” of the world is under way — creating vast, new and diverse patterns of commerce... which also means vast, new and diverse investment opportunities. Because cultural influences continuously tend to travel and disperse like pollen on the breeze, the resulting cross-pollination produces a dizzying array of cultural hybrids. In one sense, therefore, the world is becoming smaller. But as it “shrinks,” it is also expanding culturally. When cultural influences combine with one another, they sometimes produce sociological phenomena and expressions that defy strict national categorization. To illustrate the point, let’s return to those Argentine steaks, American cowboys and beach volleyball courts... According to a colleague who sometimes knows what he’s talking about, “There’s an Argentine restaurant in Amsterdam named CAU that serves a filet mignon that is as good as any filet I have ever eaten in Argentina or Uruguay...maybe better. CAU stands for ‘Carne Argentina Unica’...and that’s exactly what CAU serves. Argentina itself still holds the title for best-ever rib-eye, but the filet at CAU was incredible!” A similar Southern Hemisphere/Northern Hemisphere curiosity is unfolding in the American rodeo world. “Five of the top six riders on the Colorado-based Professional Bull Riders Tour all hail from Brazil,” The Wall Street Journal reports. “[And] there are five more Brazilians among the [rest of the] top 40 riders... The South American country has been producing strong contenders since the tour began nearly two decades ago, but never before this season have its cowboys been so dominant, with Brazilians winning 17 of the 27 events so far. Their prowess has other riders frantically reassessing their techniques, scrambling to learn Portuguese and even vacationing in Brazil in hopes that secrets to the Brazilians’ success will somehow seep in.” “I’m kinda ticked about it,” a 60-year-old computer specialist from Fargo, N.D., tells theWSJ. “There’s nothing more American than a cowboy, and all of a sudden these Brazilians are walking away with everything.” The Brazilians are also walking away with a lot of the beach volleyball titles...often without even the setting foot on a beach. Last summer, the FIVB Beach Volleyball Swatch World Tour hosted a tournament in Gstaad, Switzerland — 3,440 feet (1,050 meters) above sea level, the highest altitude tournament on the tour. Brazilian duos won both the men’s and women’s 2011 event in Gstaad, but the semifinal contests also featured teams from Germany, Poland, China, Italy and, yes, the US. As recently as 10 years ago, most beach volleyball tournaments featured mostly American beach volleyball players playing on actual American beaches. No more. Today, the best professional players could hail from almost any country on the planet...and the tournaments, likewise, could take place almost anywhere on the planet...including the Swiss Alps. This very unscientific sample of cultural cross-pollination and hybridization mirrors a powerful trend in the world of commerce and, therefore, in the world of investing. Regional cultural differences remain, but national borders are becoming increasingly irrelevant to economic trends. They are accidental, artificial constructs that surround underlying supply/demand phenomena. International commerce, therefore, is becoming less and less about bilateral trade between nations and more and more about worldwide demand for a specific product or service. Accordingly, international investing is becoming less and less about “where” and more and more about “what.” Investors can benefit by recognizing this subtle nuance. Let me explain. Traditionally, US investors seeking to invest overseas would allocate capital to a specific country or region. They might buy an “Asia Pacific Fund,” for example, or maybe something more targeted, like a “Singapore Fund.” But country- or region-specific considerations drove the investment decision. That’s traditional international investing, and it is still a valid strategy. But a complementary international investing strategy is something we call “supranational” investing. “Supra-,” according to Webster’s Unabridged Dictionary, is “a prefix meaning above, over, beyond.” Supranational investing, therefore, looks above, over and beyond national and regional borders. It seeks to identify the companies that will deliver the greatest growth around the world, rather than the countries that will deliver the greatest growth. Supranational investing seeks to identify the products or services that will attract the greatest demand growth throughout the entire world and then invest in the companies that provide these products or services. A company like Pall Corp. is a great example. Pall, which trades right here on the NYSE under the symbol PLL, manufactures and supplies filtration, separations and purification products. In the company’s own words, “Pall’s fluid management solutions enable customers to purify and conserve water, consume less energy, make alternative energy possible and practical, advance medicine and minimize emissions and waste.” Pall benefits from local demand, yes, but also it benefits from demand from the rest of the world. The company generates only one- third of its sales from the Americas. Europe accounts for 39% of its sales, while Asia accounts for 28%. As such, Pall is not an “Asian trade” or an “African trade”; it is a world trade. It is an investment in the growing global demand for clean water...and Pall’s stock market performance makes the point. During the last five years, PLL has charted an independent course that bears little resemblance to the trends of either the S&P 500 index or the MSCI EAFE index of international stocks. In other words, Pall’s share price has tracked the strong performance of its own operations, rather than the performance of any particular national economy or stock market. Even more dramatic is the two-decade-long divergence between Japan’s Kurita Water Industries and the overall Japanese stock market. Over the last two decades, Japan’s Nikkei 225 index has tumbled 59% in US dollar terms (78% in yen terms!), while the EAFE index of international stocks has scratched out a gain of 109%. But over the same time frame, Kurita has delivered a total return of 200%. Past performance is no guarantee of future performance, but in this case, we think it will be a reliable hint. For the future — both near term and long term — water purification is one of our favorite supranational investment themes. Regards, Addison Wiggin, for The Daily Reckoning Joel’s Note: As most of our Fellow Reckoners well know, Addison has been calling the big trends now for over a decade, sometimes in these pages...sometimes by way of book, conference, documentary, newsletter, interview, etc... Although, as he mentions above, “past performance is no guarantee of future performance,” we feel pretty confident that the method Addison uses to arrive at his predictions holds strong. And now that method has led him to predict, in his own words, the “mother of all bubbles.” If you have not yet viewed this eye-opening presentation, please feel free to do so here: Make “Big Oil” pay for your retirement Oil fat cats got rich on $4 gas. Now how’d you like to make them pay you back? This little-known “loophole” let’s you collect up to triple the retirement income most stocks or bonds pay... without touching the stock market... and all while “Big Oil” gets stuck with the bill. Click here now for all the details. And now back to Bill with the rest of today’s reckoning... Bill Bonner Hillary Clinton calls up Egypt, Syria, Libya, and China to “democratize.” But democracy, as practiced by the US and other developed countries, is a fraud. It is just a way for the insiders to scam money and power from the outsiders, by pretending that the voters are in charge. Just ask how many taxpayers would vote to spend about $10,000 each on the war against Iraq? How many would vote to spend $1.60 cents for every dollar in tax revenue? How many would vote for the latest mortgage deal...where homeowners who saved their money and paid their mortgages are forced to make up for those who bought houses recklessly...and then couldn’t make their payments? How many would vote to bail out Goldman Sachs...Bank of America...or Citigroup? But voters never get a chance to vote on the issues. They vote for candidates...financed by insiders, with agendas the outsiders cannot even imagine. The word ‘democracy’ arose in small, Greek city states, where the voters actually voted on the concrete issues, not just the slippery candidates. Citizens voted to go to war...knowing not only that they would have to pay for it...but that they could be killed in the battles themselves. War was a matter of life and death, not just a campaign slogan of a chubby, middle-aged draft-dodger. The Italian city states practiced real democracy too. In 15th century Florence, for example, citizens voted on whether or not to build a cathedral... Then, they voted on what shape it should take. A scale model was built. Citizens knew what it would look like. They understood how it was built and how much it would cost them. They cast their ballots and took responsibility for the outcome. American democracy, circa 2012, has no more in common with real democracy than American capitalism has in common with real capitalism. Both are degenerate...corrupt...and geriatric. *** We spent a week at our place in Nicaragua...and we wonder why we don’t spend more time here. “Because life is a struggle,” said our friend. “Here, there’s nothing to struggle against...except your worst enemy, yourself.” Hmmm... The climate is benign. No need to fight against the elements. The views are the best in the world. Nature has made this coast her chef d’oeuvre; it would be a sin to complain, ingratitude to ask for more. But more is just what we can’t help asking for... The food is delicious. The pace is relaxed. We wake up...the sun shines in the window... Outside, the surf pounds the sand. We take a walk along the beach...often seeing no other human being...splashing our bare feet in the warm water. Returning up the steps to the house, Tere, our housekeeper has already put breakfast on the table...fresh fruit, coffee, eggs... Later, we sit on the porch...overlooking the ocean...and do our work. No commuting. No traffic. No parking. No snow. No ice. Nothing disturbs our work...or our thoughts... What’s not to like? “Well...you can’t sit still and enjoy things. You need to look for challenges. And if you can’t get mad at other drivers or God, you’ll have to get mad at yourself.” Hmmm... What kind of world is this? We work to make it better...and then, when it is nearly perfect, we can’t resist improving it. ..Or making it worse. Regards, Bill Bonner for The Daily Reckoning