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| The Daily Reckoning | Friday, April 13, 2012 |
- A closer look at the economic powerhouses of tomorrow’s world,
- Fed up with the price at the pump? Thank Fed Head Bernanke!
- Plus, half a dozen beers in as many continents, solving the global financial puzzle one piece at a time, and plenty more...
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Russia and Saudi Arabia are about to get some Major Competition
Believe it or not, long-time leading oil producers Russia and Saudi Arabia are about to get the rug yanked out from under them.
What’s even more surprising is who’s doing it: The last nation on earth anyone ever expected to steal the title of World’s No. 1 Energy Producer.
In fact, thanks to a bunch of new oil discoveries, this country’s oil production has already shot up more in one year than during the previous 18 combined.
Click here to discover the secret.
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| The Rewards of a Malleable Perspective |
| Around the “World Right Side Up” With Chris Mayer |
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| Joel Bowman |
Reckoning today from Buenos Aires, Argentina...
We offer a congratulations today to our friend and colleague, Chris Mayer, who released his second book just this week, World Right Side Up: Investing Across Six Continents.
By our own calculation, we’ve shared a beer in a half dozen countries with Mr. Mayer...and more than a half dozen beers in a few of them. Whether that means a cold ale from a vendor’s cooler atop the Great Wall of China, an icy Toña served poolside at Nicaragua’s Rancho Santana, or an Ottakringer Gold Fassl with a late afternoon jause in Vienna, we’re always happy to sit down with Chris and to hear his thoughts “on the ground.”
Part of what makes these conversations so interesting — besides the welcomed libations and usually exotic vistas — is Chris’s admirable inability to turn off his investment radar. Wherever he goes, his instinct for hunting down good deals goes along for the ride. It’s the one thing he never forgets to pack. In a way, the whole thing is like a kind of puzzle to him, one his brain is constantly working on, figuring out. New countries become like new pieces of the puzzle, their markets fitting with and helping to build a grander understanding of the bigger picture. And trip by trip, country by country, market by market, the pieces fall into place...
Sometimes that means uncovering a specific, investible opportunity...one very few desk-jockeys will ever pay attention to, and maybe never even hear about. Other times it’s discovering a general theme, a larger trend from which many such actionable opportunities will sprout down the road. And then there’s the constant broadening of perspective that travel affords us all, a new lens through which to understand our own place of origin along with the world abroad and our place in it. As Henry Miller once opined, “One’s destination is never a place, but a new way of seeing things.”
When it comes to investing — whether the currency is capital, time, heart or other — seeing things differently can bring with it rich reward. Fattened herds don’t make profits. They make for a good lunch.
Chris’s brand new book, World Right Side Up, is the focus of a new review by Jeffrey Tucker, executive editor for Laissez-Faire Books. It’s also the focus of a lively discussion between Jeffrey and Chris shot recently in the Agora Financial studio. Fellow Reckoners will find them both, below...
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| New breakthrough fuel could power your car |
It took the earth 300 million years to make the oil we burn.
Imagine if we could squeeze that whole process into just a few months... a few weeks... or even a few days. Because that’s exactly what could be happening.
At least a half-dozen labs and companies are working on this, right now.
If they get it right, we could literally “make” as much gas for your car as you need. We could make fuel for planes, trains, and diesel trucks this way too.
Find out more by clicking here.
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| The Daily Reckoning Presents |
| It’s a New World, and America Is Not Leading It |
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| Jeffrey Tucker |
I’ve been waiting for this day for a while. Chris Mayer’s World Right Side Up is finally out and ready for purchase, and Laissez Faire Books is honored to be the leading distributor. If you order through LFB, you get an autographed copy plus three months of Chris’s newsletter.
I’ve followed Chris’s work for many years, and come to admire his capacity for seeing around corners with unusual prescience. He was warning of a housing bust, and explained precisely how it would play itself out, fully two years before the reality dawned on everyone else.
Here is why I think his new book is important. In the last decade, something astonishing has happened that has escaped the attention of nearly every American citizen. In the past, and with good reason, we were inclined to imagine that if we were living here, we were living everywhere. We were used to being ahead. The trends of the world would follow us, so there wasn’t really much point in paying that close attention. This national myopia has long been an affliction, but one without much cost. Until very recently.
One symptom of the change is that it used to be that the dollars in your local savings account or stock fund paid you money. The smart person saved and got rewarded. It seemed like the American thing to do. It is slowly dawning on people that this isn’t working anymore. Saving alone no longer pays, thanks largely to a Federal Reserve policy of zero-percent interest.
But that’s not the only reason. There’s something more fundamental going on, something that Mayer, author of the absolutely essential and eye-opening book World Right Side Up, believes is going to continue for the rest of our lifetimes and beyond. The implications of his thesis are profound for investors. It actually affects the lives of everyone in the digital age.
Mayer points out that sometime in the last 10 years, the world economy doubled in size at the same time the balance of the world’s emerging wealth shifted away from the United States and toward all various parts of the world. The gap between us and them began to narrow. The world’s emerging markets began to make up half the global economy.
When you look at a graph of the US’s slice of global productivity, it is a sizable slice, taking up 21 percent, but it is nothing particularly amazing. Meanwhile, emerging markets make up 10 of the 20 largest economies in the world. India is gigantic, larger than Germany. Russia, which was a basket case in my living memory, has passed the UK. Turkey (who even talks about this country?) is larger than Australia. China might already be bigger than the United States.
Check these growth rates I pulled from the latest data, and compare to the US’s pathetic numbers: Malaysia and Malawi: 7.1%; Nicaragua: 7.6%; Dominican Republic 7.8%; Sri Lanka: 8.0%; Uruguay, Uzbekistan, Brazil, and Peru: 8.5%; India: 8.8%; Turkey and Turkmenistan: 9%; China: 10%; Singapore and Paraguay: 14.9%.
Then there’s the measure of the credit-default swap rating, which is a kind of insurance against default. The French rate is higher than Brazilian, Peruvian and Colombian debt. In the last 10 years, the stock markets of those Latin American countries far outperformed European stock markets. Also, many emerging economies are just better managed than the heavily bureaucratized, debt-laden economic landscape of the US and Europe. As for consumption, emerging markets have already surpassed the United States.
“These trends,” writes Mayer, “will become more pronounced over time. The creation of new markets, the influx of hundreds of millions of people who will want cellphones and air conditioners and water filters, who will want to eat a more varied diet of meats and fruits and vegetables, among many other things, will have a tremendous impact on world markets.”
Why does he see the trends as creating a “world right side up”? Because, he argues, this represents a kind of normalization of the globe in a post-US empire world. The Cold War was a grave distortion. In fact, the whole of the 20th century was a distortion too. Going back further, back to 1,000 years ago, we find a China that was far advanced over Western Europe.
I read Mayer’s prognostications with an attentive ear, for several reasons. His book is not the result of thousands of hours of Internet surfing or cribbing from the CIA World Factbook. He is an on-the-ground reporter who will go anywhere and do anything for a story about emerging wealth. The result is the kind of credibility that can’t be gained any other way.
But there is another reason. Mayer is often cited as one of a handful of people who saw what was happening in the housing market in the mid-2000s and issued several lengthy and detailed warnings. Not only did he foresee the bust, but he explained why the boom was taking place. He saw a perfect storm brewing with a combination of subsidized loans, too-big-to-fail mortgage agencies and a Federal Reserve policy that was designed to distort capital flows. He called it like few others.
This is not because he is a magic man. It is because he is schooled in solid economic theory — this becomes obvious in page after page — and also because he is intensely curious to discover the workings of that theory in the real world. In his way of thinking, if we can’t understand or expect change, we can’t understand markets, much less anticipate their direction.
Another thing: Mayer is less interested in big aggregates like GDP (and other such “economic monstrosities”) and more interested in taking a “boots-on-the ground view, a firsthand look.” His aim: “stay close to what is happening and what we can understand in more tangible ways.” And he seems close to everything: cement factories, the hotel industry, ranches and farms, coal and cellphone companies, financial houses, glassmakers, water purification companies — all the stuff that makes up life itself.
And what he discovers again and again are localized institutions that are cooperating globally (trade!) to build capital, wealth and new sources of progress that no one planned and hardly anyone anticipated. Here is the story of the building of civilization as it has always happened in history, but tracked carefully and precisely in our times.
In this book, he uses this combination of smarts plus fanatical curiosity to examine all the main contenders for the future: Colombia, Brazil, Nicaragua, China, India, the UAE, Syria, South Africa, Australia, New Zealand, Thailand, Cambodia, Vietnam, Mongolia, Argentina, Russia, Turkey, central Asia, Mexico and Canada. Here he finds innovation, capital, entrepreneurship, creativity, a willingness to try ideas and a passion for improving the lot of mankind.
His reporting defies conventional wisdom at every turn. Page after page, the reader will find himself thinking, That’s amazing. Nicaragua is not socialist. Medellín, Colombia (the “city of eternal spring”), is not violent. Brazil is no longer a land of rich and poor, but rather home to the world’s largest middle class. China is the world’s largest market for cars and cellphones; even in the rural areas you can buy Coke and a Snickers bar. India is the world’s leader in minting new millionaires. Cambodia (Cambodia!) ranks among the world’s most powerful magnets for investment capital. Mongolia has one of the world’s best-performing stock markets.
He also discovers many large American companies that have seen the writing on the wall and opened up factories, manufacturing plants, financial services and retail shops all over emerging markets. These companies are attracted by the intelligence of the workers, the relatively unregulated and low-tax legal environment and the cultures that have a new love for enterprise. And the returns are there too. The bottom line is sending a signal for them to expand.
It’s particularly intriguing to read about how all these emerging- market entrepreneurs overcome terrible and destructive bureaucracies — they exist everywhere! — that try to gum up the works, as well as bureaucrats who know nothing of business yet have the power to kill it off. Yet their very inefficiency is the saving grace. They can’t control the future. The brilliance of the market somehow finds the workaround.
Mayer’s main interest is in finding investment opportunities, and he lays them out in great detail here. If you think about it, this is just about the best vantage point from which to examine a new and unfamiliar world. Commerce is the driving force of history, the road map of where we’ve been and where we are going. To track down the profitable trade is likely to provide more valuable insight than all the academic speculations.
This is a very exciting book. It weaves history, geography, economics and firsthand reporting into a marvelous tapestry, one that is as beautiful as art and as complex and varied as the world itself has become in our times. A fine stylist, Mayer offers some fantastic one-liners in every section (“Change is like a pin to the balloons of conventional wisdom”) and his detailed stories give you the sense that you are traveling alongside him, like walking with Virgil in Purgatorio and Paradiso in one trip.
Mayer quotes Marco Polo: “I have not told half of what I saw.” In the same way, I’ve not told even 5 percent of what’s in this extraordinary tour of the world most people don’t know has come to exist only in the new millennium. There is no way a short review can do this book justice. There is so much wisdom packed in its pages. It is a meaty and enormously credible look at a world most people have never seen. In ten or twenty years, people will point to this book and say: this guy chronicled and understood what few others did.
Regards,
Jeffrey Tucker
Executive Editor Laissez Faire Books for The Daily Reckoning
Ed. Note: Jeffrey recently sat down with Chris Mayer to discuss his new book World Right Side Up, focusing on the implications of a changing global marketplace and what that means for investors today. It’s a great companion piece to Chris’s eye-opening work. To view it, simply click the image below and follow the instructions on the page. In doing so, you will automatically be signed up to recieve our new Laissez Faire Today newsletter, and the exclusive offer on Chris’s book that comes along with it. We’ll let Jeffery explain all the details...
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| If You Own Any of These Gold or Silver Stocks*... |
Then you may be eligible to instantly collect a cash payment of $784, $1,324, or $2,345 — without having to sell your shares.
(*List also includes technology stocks, retail stocks, and more. For a complete list of all 3,097 participating stocks, see this report.)
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| The Rising Price of a Falling Dollar |
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| Charles Kadlec |
Do you know why oil and prices are moving sharply higher? Some blame the oil companies, charging they are manipulating prices. Others cite US sanctions on Iran and the threat of a military encounter that would disrupt the flow of oil from the Middle East.
Speculators, too are blamed for ostensibly bidding up the price of oil. In the political arena, President Obama is taking credit for increased domestic oil production even as his critics point out the slow pace of drilling permits issued by his Administration soon will hamper additional increases in the US oil production.
Yet, the basic reason for higher energy prices is being overlooked, even though it is right before our eyes: Oil prices are up because the value of the dollar is down. Our common sense hides this source of higher prices because we view the dollar as fixed, and prices as moving. News reports explain the sharp rise in consumer prices in February were caused by higher energy and food prices, implying that higher prices cause inflation. Of course, higher prices do not cause inflation. Higher prices are inflation.
The cost of this deception goes well beyond the vilification of the oil industry and free markets. The real price of the on-going debauchery of the dollar is measured by the loss of our prosperity and the debasement of our liberty.
Neither the dollar, nor the price of individual items are fixed. Changes in the relative prices of goods and services occur because of technological change or shifts in supply or demand. The price of computers and televisions fall relative to the price of, well, just about everything. On the other hand, the freeze earlier this winter in Florida reduced the supply of oranges, leading to an increase in the price of orange juice. But, the value of the dollar also changes, usually in ways that are imperceptible over short periods of time. As a consequence, when the dollar price of gasoline rises 6% in a month, as it did in February, it appears that the price of gasoline is up, rather than the value of the dollar is down.
To see more clearly how the price of the dollar has changed, it helps to view price changes over a 10 year period. Since 2002, the price of a barrel of oil has increased four-fold, to $107 last Friday from $26 in 2002. To suggest that oil companies had enough power to impose such a price increase, or that speculators are responsible for a quadrupling of the price of oil is, on its face, preposterous. Instead, the price of oil and gasoline are up because the Federal Reserve has driven the value of the dollar down.
For example, if the dollar since 2002 had been as good as the:
- Chinese yuan, the price of oil today would be $82 and a gallon of regular gas would cost about $3.10;
- Euro, the price of oil today would be $77 and regular gas would cost about $2.90;
- Japanese yen, the price of oil today would be $71 and regular gas would cost about $2.75;
- Swiss Franc, the price of oil today would be $63 and regular gas would cost about $2.50.
Thanks Mr. Bernanke!
Regards,
Charles Kadlec
for The Daily Reckoning
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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 atjoel@dailyreckoning.com |
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