Agora Financial’s Rude Awakening

Jump to Comments

Ouzilly, France

• The investment for speculators and grumpy old-timers,
• Abusing the dollar, panic on the foreclosure hotline,
• How much is a day in Dubai really worth? and plenty more…

Joel Bowman, reporting from Dubai…

It’s raining on Bush’s parade. This is not a political statement, merely a
meteorological one.

As the grey clouds set in over the weekend, Dubai prepped for the President’s
arrival. Rumors circulated office rooms around the emirate yesterday, warning
that the city’s major artery, Sheikh Zayed Road, would be closed from toll to
toll. By lunchtime, unofficial announcements were posted on community blogs
that closures were to be extended to include all slip roads leading the SZR.
By mid afternoon, emails were circulating the city’s office buildings
declaring that the airport would be closed to accommodate Bush’s departure on
Monday afternoon.

The Roads and Transport Authority (RTA) remained tight-lipped and the Dubai
police seemed to be unable to issue any official statement. By mid afternoon,
the discord had reached fever pitch. Traffic was backed up for miles along
the city’s 12-lane highway as people rushed home from work early to avoid
delays.

From Jebel Ali to Sharjah, Jumeirah to Mirdif, the entire city of Dubai
seemed panic stricken that they would not be able to commute to work on
Monday. Then, much to the delight of the tens of thousands of motorists at a
stand still on the highways, an announcement came over the radio.

“A public holiday has been issued for all private and public sector workers
on Monday…”

Dubai is a city of 1.5 million tradesmen, teachers, shopkeepers, financiers
and restaurant owners. That’s about the same size as the city of
Philadelphia. Today, this busy metropolis has ground to a halt. Outside,
under the grey skies, the usually bustling streets are completely deserted.
Every major road is closed, including the Gahroud and Maktoum bridges, which
connect the two portions of the city. Barely a taxi can be seen.

While 1.5 million citizens, residents and tourists sit inside their homes and
hotel rooms, President Bush is on a tour of the city. He is visiting the Burj
Dubai, the world’s tallest building, and assorted other landmarks.

It’s hard to put a price tag on this presidential outing. The city’s GDP, as
a reference point, is forecast to reach above $43 billion this year. That’s
about $120 million for a rainy old Monday like today.

So enjoy the tour, Mr. Bush. This one’s on Dubai.

— Energy & Scarcity Investor: 3 Months Free Offer —

‘Slow Volcano’ Power Could Soon Light Every Streetlight in San Francisco… without Burning One Ounce of Coal, Oil or Gas

California Senate Bill # 107 Will Legally Force California to Produce 20% of
its Electricity from Sources Like ‘Slow Volcano’ Power by December 31,
2010…

AND — 18 MIT Scientists Say that ‘Slow Volcano’ Power Can Produce 2,000
Times the Amount of Electricity that America Consumed in the Year 2005…

This Company is the Only pure play on Californian ‘Slow Volcano’ Power…and
You Could Buy 100 shares for only $38…and — for an extremely limited time
– you can get a free 3-month gift membership to the revolutionary commodity
microcap research service that discovered this hidden “Slow Volcano” play…

Details Here: Energy & Scarcity Investor: 3 Months Free

——————————————–

Marking to Madness
By Bill Bonner

A foreclosure hotline has been “overwhelmed” with desperate pleas for help,
moans a report from the United States. One of America’s largest builders
reports a record loss…and, in the last quarter, house prices across America
took their biggest fall in 21 years. U.S. Treasury Secretary Paulson says
he’s run out of “easy answers” for the credit crunch problem. And the U.S.
stock market registered its worst first five days in history.

The BBC passes along a Merrill Lynch report, warning that a recession “has
arrived” already in the United States of America. And colleague John Stepek,
Deputy Editor of MoneyWeek , says, “Britain will not be far behind.”

The news headlines whine and squeal. But here at The Daily Reckoning , we are
as happy as a loafer and tranquil as a corpse. We neither add to your worries
nor take away from them. Instead, we count our own blessings: we have the
devil’s own subprime debt and a credit crunch from Hell ; we have dollars,
pounds and euros – none of them worth much of anything in particular; we have
Ben Bernanke, Mervyn King, and a whole caste of characters that seem to have
escaped from a circus; we have economic theories that would make an alchemist
blush…and financial opinions that would embarrass a plumber; and we have a
bull market in our favorite metal, gold .

The Canutes at central banks in all time zones are determined to put the
market out of business. If they put enough new money and credit in
circulation, they believe, the mistakes of the past will disappear and the
markets will behave themselves. They seem not to notice that the mistakes
were caused by too much money and credit in the first place! Prices of real
things – oil, gold, food and farmland – are soaring. Oil rose over $100 in
recent trading – for the first time ever. And gold punched into entirely new
territory – almost reaching $900. The Financial Times says that gold is the
“new global currency,” hinting that the old currencies – notably the dollar –
are yesterday’s news.

But who has gold? Only a few speculators and grumpy old-timers. If it really
were the world’s new currency, most of the world’s people would be flat
broke. Most people have paper money. And they have no idea what it is really
worth.

It was only a few years ago that low-cost communications and computer
technology seemed so promising. Access to the Internet was said to have
changed everything. Former Fed Chairman Alan Greenspan said 10 years ago that
a new era of faster productivity growth had arrived – thanks largely to the
power of the Internet. But now the pudding has been tasted and digested; we
make a face and pronounce judgment on it: with infinite knowledge at our
fingertips we have turned into a race of morons. Ten years after the dawn of
the Information Age nobody knows anything. Is it inflation or deflation? Are
we getting richer or poorer? Nobody can tell you.

What is a derivative contract really worth? Who knows? Not the people who put
it together, the people who sold it, the people who gave it a AAA rating, or
the people who own it. The alarums sounded back in the summer; it was clear
then that the ‘mark to model’ valuations of these investments were as flawed
as a TV preacher. Remarkably, months went by without anyone really knowing
anything more – except that many people were losing money, including some of
the smartest financial institutions in the world. Buying, selling, trading,
investing – the transactions kept happening; trillions of dollars changed
hands. And financial firms tote up many of their positions based on Enron-
style “mark to market” calculations. They guess not only on the value of the
trades six months, one year…five years into the future…but on what the
dollar will be worth too. And who even knows what a buck is worth today?
Circa 2008, the whole world’s financial structure is built of sugar bricks.
It is all so sweet, until it starts raining.

And the builders – they seemed to know not nothing – but less than nothing.
How complicated was it to build a house at a profit? Levitt and Sons –
inventors of modern American suburban development – had been doing it for
more than 50 years. And yet, with computers on every desk…with access to
Black Scholes Option Pricing Model… the Lev and Thiagarajan indicators, the
Edwards-Bell-Ohlsen analysis…with a staff of trained economists and
mathematicians ready to figure thousands of financial scenarios…and
Internet connections drawing forth every possible bit of information at the
speed of light, they still went bust. With all the wonders of the new era in
communications at their disposal, Levitt’s sons couldn’t figure out what the
old man had been able to calculate on the back of an envelope – whether they
were making money or losing it.

The financial world is essentially a war of wits. But in the 21st century the
combatants laid down their arms. We recall the people who made “mark to
market” accounting notorious – the Enron desperados. Ken Lay’s defense was a
jewel; he argued that he had so much information he didn’t know what to do
with it all. He couldn’t be guilty of intentionally misleading investors, he
told the court, because he didn’t know what was going on himself. The same
line of talk was used on reluctant investors: Enron’s business model was too
sophisticated for ordinary investors to understand. Like the New Era of
dotcoms…subprime mortgage debt and derivatives…the current account
deficit…the dollar…and all the financial subterfuges that are so clever
we will never understand them…you just ‘got it’ or you didn’t.

But that is the great glory of the financial markets. What the people who
‘get it’ get, sooner or later, is usually what they deserve. Who could ask
for more?

[Joel's Note: The hysteria circulating the city of Dubai yesterday is known
typical groupthink. Such herd mentality also extends to market activity, as
Bill explains in his new book, Mobs, Messiahs and Markets. Being a successful
investor, a contrarian investor, is all about identifying the path of the
common, “dumb money”…then placing your bets against it. To learn how to
understand the kafuffle – and profit from it – you might like to given Bill’s
new book a read. Here’s a link if you’re interested.

Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and
Politics

Enjoy,

Joel Bowman
Rude Awakening