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The Daily Reckoning | Tuesday, September 4, 2012 Finding a Wi-Fi café with a little help from Google Translate... What the US could learn from the Moroccan growth sector... Plus, Chris Mayer on a Canadian’s view of US politics and the dangers of ignoring “alternative histories”... ------------------------------------------------------ External Advertisement The greatest creation of wealth... Thousands of investors have already become millionaires because of these two technologies. If you don't know what they are, you'll want to watch this presentation. I believe this is the biggest opportunity to create wealth in generations. This trend is just beginning. To learn more, click here.   Quote of the Day... “The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable.” — H. L. Mencken More Than Meets the Eye A Closer Look at Moroccan Growth Potential   Joel Bowman Reckoning today from Marrakech, Morocco... “BEHIND THE MOSQUE” The message appeared on a dusty old Dell laptop, proudly displayed by the store clerk around the corner from our riad here in the Medina. We’d asked some directions...in broken, barely-French...and the young man, no more than 16 years of age, quickly set about punching the information into Google Translate. His smile, upon reaching an answer, stretched from ear to ear.  We would find the Wi-Fi cafe after all... What happened since we left you, Fellow Reckoner? Ah, yes. The Fed concluded its back-slapping fête in Jackson Hole on Friday, with The Bernank going way out on a thin limb: “Bernanke Bets New Economy Is Same as Old One,” was how one paper put it. The world’s most powerful central banker is facing growing concern that persistently high unemployment — officially at 8.3% — is due to “structural shifts in the economy wrought by the financial crisis.” Critics of his policies “contend joblessness is permanently elevated.” Bernanke responded as one might expect someone in his position to respond. “I see little evidence of substantial structural change in recent years,” he said, arguing for “more of the same.” “The costs of non-traditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant,” waffled Bernanke. “Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market.” “In other words,” wrote Dave Gonigam in Friday’s edition of The 5 Minute Forecast, “he’s ready to once again sacrifice savers on the altar of ‘quantitative easing’... but not just yet.” Surely Fellow Reckoners will agree, achieving “further” progress implies having achievedsome progress in the first place. Bernanke & Co. have used all manner of tools to pin interest rates to the floor since the crisis began, mushrooming the Fed’s balance sheet over $2 trillion in the past three years alone. Where is this “growth” of which Bernanke speaks? Where is the job creation? Where is the progress? According to the Fed’s own tortured figures, the economy continues to merely sputter along, growing at just 2% annually, barely enough to keep its head from slipping under the waves. Unemployment levels, too, are largely unchanged. Some 13 million Americans still find themselves unemployed...a figure which does not take into account a few conveniently-dismissed groups. “Involuntary part-time workers,” as the Feds categorize them, totaled 8.2 million for the month of July. “Marginally attached” workers numbered another 2.5 million. “They were not counted as unemployed,” explained the Employment Situation Summary from the Bureau of Labor Statistics, “because they had not searched for work in the 4 weeks preceding the survey.” Hmm...guess they don’t count, then, eh? The number of long-term unemployed (those jobless for 27 weeks and over) was little changed for the month of July at 5.2 million. This group now accounts for over 40% of the total unemployed. Of course, the Feds don’t measure success the same way that, say, an honest (or even dishonest!) individual might. How, for example, would Bernanke and his well-degreed peeps categorize our friendly helper here in Marrakech? The fact that this young man was tending (probably his father’s or uncle’s) store at all would likely run him afoul of American child-labor laws. He certainly didn’t charge us for providing his services, nor log his work in a journal, though we did offer a few dirhams for his help (which he politely waved away.) Moreover, we doubt his operation, which, as far as we could make out, dealt largely with repairing old computer monitors and keyboards, reports earnings to the “appropriate authorities.” What, then, would they make of this young lad? Is he “marginally attached”... “underemployed...” ... “discouraged”...or does he wedge into some other creative, politicospeak definition? To be sure, there’s not much to envy in the Moroccan economy. The country ranked a dismal 130th in the UN’s 2011 Human Development Index. Almost 40% of the population cannot read or write and the telltale signs of extreme poverty are ubiquitous. Donkeys still stand in for taxis in many parts and, under the sweltering midday sun, even the spice sifters in the main square slip seated to supine for a few hours of precious shuteye. Little, in fact, is accomplished during daylight. The bustling souks only come alive in the cool of the evenings. Our point is not that the United States government should start emulating the Moroccan government...though with the comparative resource riches that remain under governmental lock and key in the US, it might not be entirely a bad thing... Since 1993, the Moroccan economy, Africa’s fifth largest, has undergone a series of privatizations of industries previously under the government’s control. These include airlines, telecommunications, a slew of large industrial projects and the increasingly important tourism sector. In addition, the government plans to sell off agricultural lands currently managed by state farms, a move that will impact roughly 40-45% of the working Moroccan population. Growth rates, (as far as official figures can be trusted...on either side of the Atlantic) are today about two and a half times those in the US. And, in recent years, both the budget deficit and overall debt have fallen as a percentage of GDP. There are other important indicators too. As our young friend happily showcased, the country now has the fastest Internet usage growth on the continent. With increased access to information comes a kind of “social liberalization.” It is not uncommon, for example, to see young women walking arm in arm down the streets, one in traditional garb, the other in “western-style” clothing...a prospect that would have been unthinkable not so long ago. That said, there are many challenges still ahead. Morocco is the world’s biggest exporter and third largest producer of phosphorus, a key component in fertilizer. Its production plays an inordinately large part in the national economy and, therefore, price fluctuations of the mineral in the international market strongly influence the country’s economic vitality. Along with most other commodities, phosphorus took a nosedive toward the end of 2008, collapsing from over US$430 per metric ton at its peak to just $90 per ton by mid-2009. It has since recovered to $180 a ton, but that’s still a long way from the record prices of four years ago. So as you might imagine, Morocco’s major market indexes have tracked a similar course. The MASI (Moroccan All Shares Index) is down almost 33% from its 2008 all-time high...and is very close to hitting a 6- year low. We have no idea if this represents an interesting value play or merely an offbeat idea...or somewhere between the two. Therefore, to borrow a phrase from our senior editor, Eric Fry, we’ll simply conclude that, although Morocco might not yet be a “buy,” it is probably less of a “sell.” Hoping to gain greater conviction about the timeliness of investing in phosphate (or the Moroccan stock market), we asked Chris Mayer, editor of Mayer’s Special Situations and the only man we know who can provide on-the-spot insight on everything from Burmese rail travel to Moroccan phosphate, for his opinion on the matter. “I just visited a phosphate miner last week in Toronto,” he replied in a manner suggesting he had been expecting just this question. “Morocco is who everyone in the business pays attention to because they have 70% of the world’s phosphate reserves. And they are the world’s largest producer. They essentially set the price. The market for phosphate should remain tight as long as the Moroccans don’t flood the market. So far, every indication is that they want to make a good return on their assets. “If that’s true,” continued Chris, “then we could have tight phosphate markets for the next several years, especially in North America. It’s the same old story, the best mines are getting old and need to be replaced. There is not much new supply, but demand grows apace. The price for the rock is still $180-200 per tonne, a healthy price and it tends to follow the FAO food price index. With grain prices likely to stay high given the damage drought did to grain inventories, the picture looks pretty good for phosphate.” In today’s feature column, Chris lends us his thoughts on another topic entirely. Read on as Chris argues why governments — particularly the hyperactive, overreaching types — are on his permanent “sell list.” Please enjoy...  P.S. Chris will have a full write up on the Canadian phosphate play he’s been researching for members of his Mayer’s Special Situations newsletter Friday after next. Fellow Reckoners who’d like to follow up on the idea are invited to grab a risk-free trial toMSS right here.   Depression-Era Law Lets Investors Collect Six Times More Dividends Thousands of Americans are now using a “forgotten” legal clause to collect up to six times the income most S&P stocks pay. Better yet, there’s also an impressive Federal tax advantage built into this law. In fact, that’s partly why the payouts are so much greater. To see how it all works, and to begin collecting your tax advantaged dividend checks,check out this video presentation. The Daily Reckoning Presents Politics, Politics   Chris Mayer (Warning: The following covers political topics that you may choose to skip.) Canadians seem very interested in the US election, more so than my jaded American friends. Many Canadians I met wanted to talk about it. One Canadian told me: “Canada is like a mouse sleeping next to an elephant. We keep one eye open so we can scramble if the elephant decides to roll over. The elephant doesn’t notice when it rolls over, and it has no need to take heed of the mouse, either.” I had one meeting where a young analyst went on in mocking tones about how Americans don’t like to pay taxes. As a docile and subservient Canadian, this struck him as silly. He sang the praises of government safety nets and public works, etc. He then started to get into US history. Now, I don’t like to cross swords with people on politics anymore. Still, there is only so much an American abroad can take of having his country’s revolutionary and individualist history misrepresented as an Obama-esque government-built-it fantasy — especially from a seemingly smug Canadian. When he started talking about Hoover Dam and the Tennessee Valley Authority as great examples of the value of public works, I had to unsheathe the cutlass. One analytical tool that I find very humbling is the idea of alternative histories. As Nassim Nicholas Taleb puts it in Fooled by Randomness: “One cannot judge a performance in any given field (war, politics, medicine, investments) by the results, but by the costs of the alternative (i.e., if history played out in a different way). Such substitute courses of events are called alternative histories.” In essence, you can’t just look at the US Highway System and say, “Gee, look at that great thing and all that it’s done.” You have to consider the cost of the alternatives. What might have been done if the US government left that money in the hands of those who earned it? Who knows what alternatives may have been pursued? Perhaps the private sector would have created a more-efficient rail system. Perhaps the US would have considerable less reliance on oil. Who knows the compounding effects of this alternative history? Chris Mayer’s Capital & Crisis Presents... How to Fend Off Government Attacks On Your Wealth... If you’re concerned about the security of your wealth in the face of government incompetence, this report is a must read. In it, you’ll discover the safest way to earn 42% gains, year after year. This is not an hour-long video or a “talking head” piece. It’s just a simple, straight-forward look at how you can earn solid gains in uncertain times. Click here now to review it for yourself. As Taleb writes, alternative histories are not observable. We cannot turn back the clock and play the movie again to see what might happen. We can only imagine and guess. Still, I think it is humbling. Keeping this idea of alternative histories in mind is at least a way to get the busy world-improver to stop and reconsider his confidence. There is so much we can’t know. Anyway, there was a brief clash of swords as we debated this and that. No blood was shed. In truth, my heart was not in it. Political beliefs are a lot like religious beliefs. When you encounter someone who wants to tell you what a great thing government is and how we should all be thankful for it, you can’t hope to change his mind. He believes what he believes. You can only sit there and think of palm trees and rum drinks and wait it out, or change the subject. As for me, I should declare my own bias. I always liked Henry David Thoreau’s opening salvo in his essay “Civil Disobedience”: “I heartily accept the motto, — ‘That government is best which governs least;’ and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe, — ‘That government is best which governs not at all;’ and when men are prepared for it, that will be the kind of government which they will have.” I think he is right. H.L. Mencken had a similar view. I reach for my copy of A Mencken Chrestomathy — under the section “Government” — and find this passage highlighted: “The ideal government of all reflective men, from Aristotle onward, is one which lets the individual alone — one which barely escapes being no government at all. This ideal, I believe, will be realized in the world 20 or 30 centuries after I have passed from these scenes and taken up my public duties in hell.” He wrote that in 1919, so we have a while to wait yet. (There are many more eloquent writers taking such stands, like Albert Jay Nock and Murray Rothbard.) While I have no love of government, I do love America. I love its history. I love the great big mass of land it inhabits. I love several of its cultural attachments — such as barbeque and blue crabs, blues and jazz, poker, American sports like football and baseball and American beers — to name just a smattering. I enjoy the company of many fellow Americans. But in the land of politics, I am the standing opposition. Whoever is in power, I’m against him. OK, no more politics....Thanks for reading! Regards, Chris Mayer,  for The Daily Reckoning --------------------------------------------------------- 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