The Rude Awakening
Vancouver, Canada
Thursday, July 23, 2009
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* When normal just ain't normal in either markets or life anymore,
* Brazil's amazing endowment and global economic reshuffling,
* What to do when a third of your life is over and plenty more...
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Eric Fry, reporting from Vancouver, Canada…
"I turned 50 this year," your California editor declared yesterday from the podium of the Agora Investment Symposium here in Vancouver. "And of course, the very first thing I thought was, Wow! One third of my life is already over!...But after I calmed down a bit, I began to think about how many things had changed during the last 50 years…
"It's amazing how different things used to be…
"Almost no cars had seatbelts…but almost everyone drank 'one for the road.' There was no health food or Yoga or Pilates…just Jack LaLane. Women were 'dames,' alcoholics were 'boozers.' Alcoholic sounds so harsh. Boozer doesn't seem half-bad…Which reminds me of a line a heavy-drinking good friend mine likes to say whenever someone calls him an alcoholic. 'I'm not an alcoholic,' He says. 'Alcoholics attend meetings.'"
Your editor proceeded to offer several other examples of the way things used to be, back in 1959, when he first stepped into the material world. Among the examples – both silly and serious – was a video clip of a late-50s TV commercial that featured the following voice-over:
"In a repeated national survey, doctors in all branches of medicine, doctors in all parts of the country were asked, 'What cigarette do you smoke, doctor?' Once again, the brand named most was Camel…" (To see the add for yourself, click here ).
This humorously anachronistic ad was just one striking example of the way things used to be, the "old normal."
But, your editor suggested, investors cannot afford to allocate their precious capital based upon the old normal. Instead, they must be vigilant to change, especially to the barely perceptible, Big Picture change that causes an economic Super Power to become some less super. Read on for headlines of your editor's presentation…
---- The Richebacher Society Survival Report ----
Secretive Society of economists, market players, and world-class researchers and analysts reveal...
The TRIPLE TIMEBOMB That Makes Market Recovery Almost IMPOSSIBLE in 2009 or 2010...
Elite alliance of experts warn: don't hold your breath waiting for a recovery this year or even in 2010. The three toxic timebombs they name below make a quick rebound next to impossible.
Yet, they also name seven "Super Shields" you can use to safeguard against further losses... plus at least five surprising "long" plays you can still use — even now — to get very rich. Read On Here
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The First Shall Be Last…Or At Least A Distant Second
By Eric J. Fry
The old normal will not be the new normal. So we must all ask ourselves. What will the new normal look like and how should we prepare for it?
"Normal" is getting a lot of press these days. Everybody wants things to get back to normal…as if normal were a constant, never- changing condition. Folks also talk about normal as if it were always a good thing. But it's not.
Sure, it's comforting to have a normal blood pressure or a normal cup of tea or a normal night's sleep. But no one ever finds comfort in a normal dispute or a normal root canal or a normal veneral disease. And remember, once upon a time, bubonic plague was normal…and so was slavery…
Normal is not static.
"Familiarity" is also deceptive…and sometimes dangerous. Familiarity is the first cousin of normal. It is the form of normal with which we are most comfortable. Familiar usually feels safe. But it does not equal safety. Most fatal traffic accidents occur on familiar roads, very close to the victims' homes. And most financial accidents occur in the familiar neighborhoods of seemingly safe stocks and bonds. Overtly risky securities claim few victims. Everyone knows they're risky and prepares accordingly. But those familiar, "safe" securities are the ones that wreak havoc and claim vast numbers of victims. Names like Enron, Countrywide Financial, Washington Mutual and yes, General Motors are the most dangerous types of stocks.
For most of us in this room, American financial assets are the most familiar investment vehicles. They are our Coca-Cola…our Baywatch…our Girls Next Door…(I'm talking about the TV show, not the actual girls next door). As such they are comfortable and comforting…
It's okay to hang onto comforting things, uncritically, as long as someone else is watching the big picture for us. A two-year baby can wander around the yard with his blankey and binky, as long as Mom or Dad are making sure the he doesn't stroll out into the street.
But it's not fine if Mom and Dad suffer from Munchausen by proxy syndrome…like our government leaders. The Fed and other leaders within our government have succumbed to a version of this neurosis. In the midst of declaring their concern for our beloved economy, they sprinkle glass shards in our oatmeal, financially speaking…and then they enact emergency measures to heal the damage they caused.
Net-net, investors must remember that "normal" economic conditions and familiar asset classes are undergoing continuous changes. And sometimes those changes are substantial…and demand the attention of forward-looking investors.
I believe there will be a new normal that will look very different from the old and current normal. The U.S. economy will lose its relative strength in the global economy. The good news is that Rome wasn't burned down in a day. It took a while. The bad news is that Rome has been burning for a while already.
• In 1965, manufacturing activities contributed more than 70% of GDP. Today, that percentage has dropped to 30%.
• In 1971, Nixon closed the gold window and kicked off a generational doubling of the inflation rate
• In 1982, federal debt-to-GDP begins rising from a generational low of 30% to a recent 50-year high of 75%.
• In 1986, federal debt tops $2 trillion
• In 1992, federal debt tops $4 trillion
• In 1996, federal debt tops $5 trillion
• In 2008, federal debt tops $10 trillion
But the actual federal debt is even higher than $10 trillion…a lot higher. The $10 trillion number is based on cash accounting.
When using GAAP-based accrual accounting, that actual federal debt is a number closer to $74 trillion. GAAP accounting includes the estimated future costs of expenses like Social Security and Medicare. In other words, GAAP accounting is much closer to reality than cash accounting.
Interestingly, all the while that we Americans have been piling up debts – and crippling many of our productive industries – many other nations around the globe have been reducing their debts and enhancing their competitive capabilities. Brazil is a fascinating case in point.
Brazil's government debt-to-GDP has been falling steadily for the last several years, and is now less than half the U.S. level. Meanwhile, it is interesting to note that Brazilian GDP relative to U.S. GDP has doubled during the last 50 years. Slowly but surely, Brazil is becoming a bigger piece of the global economic pie.
Investor cannot afford to ignore such substantial, long-term changes in the composition of the global economic pecking order.
To be continued…
[Joel's Note: Please remember that you can grab all of this year's speakers presentations in full (including slides and PowerPoints) on the MP3 recordings we're capturing all this week here in Vancouver. They're very convenient if you wish to refer back to them at any point in the future and, well, we think they contain some pretty important information that you might want to have on file somewhere.
As is the case every year, the CD and DVD packages are discounted while the conference is in session...then goes up when it ends (Friday). For more information, please
click here .
Finally today, market measures were mixed back in Asia and Europe overnight. Most of the latter's major indexes fell slightly, though not enough to demand any unnecessary analysis. (Germany and London's measures ended down 0.04%, for example. Not much to say about that.)
Over in Asia, however, Hong Kong's Hang Seng rallied a rather steep 3%, rocketing the index to within a whisker of the 20,000-point mark.
Japan's Nikkei 225 clung on to some regional momentum to mount a 0.75% gain itself while the Aussie All Ordinaries ended slightly lower, down 0.11%.
It was a relatively tepid day for commodities too. Oil gave back less than a buck from just over $65 per barrel and gold slipped just over three. An ounce of our favorite shiny stuff now goes for close enough to $950 per ounce.
Your editors will be roaming around the conference here in Vancouver for the next few hours, catching presentations from Byron King, Doug Casey and others. We'll catch in again tomorrow with some of the action.
Until then...
Cheers,
Joel Bowman
The Rude Awakening aussiejoel@the-rude-awakening.com |
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