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The Daily Reckoning | Saturday, September 8, 2012 Exchanging certain misery for uncertain opportunities, Readers weigh-in on housing prices in their backyards, Plus, all this week’s reckonings archived for your homesteading entertainment... --------------------------------------------------------------- Amazing... But True! Tobacco is being resurrected — making it the profit opportunity of the decade. It turns out that one man’s quest to help people quit smoking has led to what could be the most important “accidental” health discovery since penicillin.  And for you — it could be the biggest potential “profit bonanza” since Pfizer accidentally discovered Viagra.  Discovered by accident: A chemical compound in tobacco that doctors are now recommending to slow aging! BUT because Wall Street inexplicably thinks the biotech firm that owns the patent — and is already selling this miracle product without a prescription — is a nasty, dirty tobacco company, you still have a little time to load up before the truth is finally revealed! Learn more about this amazing opportunity right now, right here. Notes from a Bygone Future Joel Bowman Checking in today from Madrid, Spain... Actually, that’s not entirely true. As you’re reading this, we’re in Spain’s capital...but when we were writing it, we were in a makeshift office in the dusty and chaotic Medina of Marrakech, Morocco. We actually took a horse-drawn cart to our temporary digs. No kidding! Traveling to Morocco is very much like stepping back in time. And it ain’t always easy ridin’...  To those who answer that common dinner party question, “In what age would you like to have lived” with a droopily romantic, “Oh, oh...In the [whatevereth] century, in the long-distant past,” let us assure you...life then was harsh. Very harsh. For men answering the question with a lustful gaze t’ward some ancient, bygone time, be sure to check the average life expectancy for that period. Chances are, you’d already be dead! And women might want to check on the social and religious practices of the time. Forget being able to vote or work... Depending on your desired hypothetical birth date, you might find yourself teleported directly to a dunking stool or tied to a burning stake.  Like many poorer parts of the world, life expectancy here in this North African nation didn’t surpass 50-years until the mid-’60s. And, although there are encouraging signs of social liberalization, many women are still forced to dress in what are essentially burlap sacks, cut off from the world and shamed into a most servile status, far beneath that if their menfolk.  In many — arguably most — cases, the distant past was a scary and inhospitable time in which to live. Not to say the future doesn’t also inspire in us a degree of trepidation...but it is fear of the unknown, fear of uncertainty, that we must learn to grapple with...and even to embrace.  In questions of political uncertainty, there is understandable, palpable, fear in the air. The mere suggestion that humans might be better off shedding our demonstrably-failed 6,000-year experiment with The State, for example, inspires, even in thoughtful, contemplative individuals, a deep and dark fear of the unknown.  “Who will build the roads? Who will protect me from violent mobs? Who will guarantee my government-promised welfare? Who will educate our children?” We imagine similar anxieties must have gripped those arguing against setting free the slaves.  “Who will plant the corn? Who will pick the cotton? How will we feed ourselves?” And perhaps, as an afterthought, “How will they feed themselves?” Of course, freedom is always the right answer...even if, and often times especially when, it implies an uncertain path ahead... In this week’s feature column, Chris Mayer dares to wonder about alternative pasts...and, perhaps more importantly, an alternative future, one you won’t ever hear addressed by politicians on either side, but one worth at least a few minutes of consideration. Please enjoy... [The following column originally appeared in these pages on Tuesday, September 4, 1012] 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 What to Expect in 2013... Between 2004-2007, Bill Bonner and Addison Wiggin did their best to alert their loyal readers to the dangers of the housing bubble well before the mainstream said anything about it. Well, today, they see something even worse looming just over the horizon. It’s not often our Reckoner-in-Chief agrees to appear on-screen, but this was just too important. Click here (or the image below) to see what they’re talking about now... ALSO THIS WEEK in The Daily Reckoning... A Closer Look at Moroccan Growth Potential By Joel Bowman Marrakech, Morocco 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. Seeing The World Through Bonner’s Eyes By Jeffrey Tucker Auburn, Alabama Mobs, Messiahs and Markets lifts the fog spread by governments and mainstream media so that we can all see reality for what it is. Written by Bill Bonner...the book covers in great detail the transformative decade from the late ’90s to the late 2000s... The Elephant and the Flea By Chris Mayer Gaithersburg, Maryland The age of giant corporations is over. The age of the entrepreneur is here. This idea will change the way you think about your portfolio. It may well change the way you think about business. And if you follow it to its logical conclusion, it should inspire you to invest in the kinds of ideas best fitted for this new age.  The Fed is Officially Insane By Dan Amoss Jacobus, Pennsylvania There’s an old saying that defines insanity as doing the same thing over and over again and expecting different results. The Federal Reserve wants to test that theory. Fed officials have been all over the media for weeks, laying the groundwork for a third round of quantitative easing. New breakthrough That Makes Oil Drilling Obsolete 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.  And that’s not all... The Weekly Endnote... Last week, after publishing an essay by Chris Mayer, which revealed some surprising numbers on US housing, we invited our Fellow Reckoners to write in with some boots-on-ground observations from their own backyards. Here are a few of their responses... First up, Reckoner Daniel Muhe, writing in from one of the hardest hit areas of the country... [At my company] we have about $80 million out in 250 loans secured by first trust deeds on California real estate at 10% to 12% rates. These past six months, for the first time in five years, we are seeing falling inventory of listings, rising prices, and actual bidding wars to buy homes and apartment buildings. It seems the release of foreclosed REO properties has slowed significantly. I believe there is still a huge inventory of REO and soon to be REO homes, but for now the Banks seem to be holding back on their release. Stories of vacant REO homes are common.  Borrowers in foreclosure for years, in a State where foreclosure actually only takes four months, abound. I am very concerned about another dip in prices after the election and have sold almost all of our REO inventory into this current uptick. New loans at 65% of value would give us our 10% to 12% yield , even if we foreclosed and rented them. I like the new loans but am still unsure this market has bottomed, even after a 50% drop from the peak in many California markets. I like investing with a 35% equity cushion and high rates, and will continue. Thanks for the insights you share! We are living in a very uncertain world, the worst in my 30 years of running this company! Next up, Reckoner Bob writes in from the great Midwest... Here in central Illinois we have seen a fairly good housing market. Employment has been fairly stable over the last few years with an uptick primarily among the first time job seekers. Another factor in the local housing market was that buyers were not so stupid that they bid prices to unrealistic levels or the local banks so greedy that they made foolish loans. I think I speak for many of my neighbors when I say it is time for the government to quit bailing out the banks, builders and buyers who were victims of their own greed and stupidity. And here, Reckoner Jeff writes... My wife and I had sold out of real estate in 2006, being in banking the writing of looming problems with stated income deals and zero down deals for people I wouldn't loan twenty bucks to, much less 200K. Last month we ended up buying a group of properties from an investor, the three duplexes and one-four unit set us back 100K in a decent suburb of Milwaukee, Wisconsin. The rental income is about $4,500 gross, while the city assesses the property at 528K even while we paid less than 20% of that. This means our largest expenses are property taxes at about $1,200 month. I’m obviously arguing to get the taxes lowered, and getting lectured by the city assessor/appraiser how they aren’t valid sales if they were never on the MLS. Also, they won’t count any foreclosure sales in the area as valid sales either, which means they won’t let you have any ammunition to argue for lower property taxes.  Should be interesting, but we have an accepted offer on the 4-unit after numerous speeches from the city officials of spending 40-50K to put sprinklers in it. Yeah, I don’t have the endless property tax revenue to throw money in a black hole like that. And finally, Reckoner Tom wrote in to say... We had my Mom’s house on the market for about 4 months at $775,000. We had some very low ball offers $625K-$650K and we took $675K. It is in an upscale town near NYC. Houses will move if the prices are right. But people want bargains. It is a buyer’s market. We needed the cash for Mom’s healthcare as my Dad passed away last year. She is in an expensive nursing home. But construction is nonexistent here in Northern NJ. The critical aspect of the real estate market is that for the first time in my 52 years here the prices of land have dropped 25% since the bust. That is what is different about this collapse. The NJ market always relied on a booming NY financial sector. Now that boom is bust and as a result NJ has never recovered. The sad truth is it never will either. The cost of living here has just skyrocketed. There is just no vitality, no jobs, no growth, no hope. In the last three months my neighbor lost his job and my brother-in-law lost his. It is just not good. Scary times indeed. P.S. Loved the piece on the Fed “Champions of Dishonesty”. Keep up the good work on telling the truth. You won’t get this on CNBC or Bloomberg. --- Are these emails ringing any bells? How’re things in your neck of the woods? Worse? Better? Unchanged? Well, we’d like to know. Feel free to email any thoughts you have on the matter to the address below and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning