Agora Financial’s Rude Awakening

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Dubai, UAE

· When cheap enough becomes good enough to start buying,
· Banking on an “all weather asset of enduring value,”
· Plus a way to use royalties to earn money while you sleep and plenty more…

Eric Fry, reporting from Laguna Beach, California…

“Mr. Market needs a hug,” James Grant joked at the recent Grants Investment Conference in New York.

Maybe Grant is right. But frankly, we would rather give Mr. Market a nudge…into the Hudson River. We’re tired of the guy. We investors are the ones who need a hug… along with a reimbursement check to compensate us for our year-to-date losses.

Unfortunately, Mr. Market never cuts reimbursement checks. That’s not his style. But he does sometimes repay losses over time. The problem is that the guy is completely crazy and utterly untrustworthy. Sure, stocks have bounced nicely from their recent “crashette,” but we don’t really trust the bounce.

On paper, stocks are cheap. But out in the real world of commerce, corporate earnings are imploding. So maybe stocks are not as cheap as they seem. Americans are reigning in their spending and banks are reining in their lending. So what chance does this economy have?

Yesterday, General Motors reported its worst October sales since the Second World War, on a per capita basis. Based on raw sales numbers, however, GM’s results were slightly better. They were merely the worst sales results since 1975. The rest of the world’s auto manufacturers reported equally disastrous results for October. Many other industries are also swooning, which prompts two obvious questions:

1) If revenues are tanking, won’t earnings also fall?
2) If earnings fall, won’t share prices tank?

We know that stocks are cheap, at least cheaper than they have been during the last 20 years, but we don’t know if they are “cheap enough”… whatever that moving target might be.

Therefore, since we do not know for certain whether the “bottom is in” or whether the bottom lies another 3,000 Dow points below us, let’s conduct a little exercise. First, let’s imagine that stocks are cheap enough to buy; Second, let’s not forget to imagine that stocks might become even cheaper still.

Question: What should we buy?

Is there any possible way to make an investment today, while still mitigating against the risks of an even larger decline? In other words, as we have been asking all Rude readers during the last few days, are there any “chicken longs” worth buying right now?

“Chicken Longs,” as we explained last week, “would be stocks that are both cheap now but, in the possible event that the Dow plunges another 2,000 points, won’t be totally laid to waste. These stocks might derive their insulation by paying a very high yield, like the investment trusts we offered in Tuesday’s column, or from some other large margin of safety. (October 21)”

We received a large number and variety of responses to our query. Many of the suggested stocks have already bounced dramatically from their recent lows. (We’re sorry about that, but these things happen when the stock market jumps 12% in a single week). On the other hand, most of these stocks remain well below where they were trading in early October. So, depending on your perspective, these stocks are either cheap or expensive. In tomorrow’s column, we will dive into this list.

But we will kick off our newest Rude Awakening Group Research Project with a submission from our own Chris Mayer, editor of Mayer’s Special Situations. To preview, Chris likes natural resources, but not just the normal ones like gold and oil.

Chris likes timberland, for example, as he explained in the October 15 edition of the Rude Awakening. Trees don’t read the newspapers; they don’t know if the global economy is in a deep recession. They just wake up every morning, take a deep breath of carbon dioxide, and grow a little bark. Day by day, timberland assets grow in value, no matter what the economy is doing.

In a similar way, topsoil is an all-weather asset of enduring value. Most of us never think about topsoil. But we should, as Chris explains below…

—- Chris Mayer’s Special Situations Report —-

Closed to New Investors for the Last 6 Years — Now Open Again…The “Chaffee Royalty Program” That Turned Every $1 Into $50

In 2002, the same royalty “paycheckprogram” that paid out $50 for every $1 invested… decided to shut the door to new “members.”

In 2008, that door is open again…and it just got easier than ever to”make money while you sleep”…

But there’s no telling when it could close again…So you’d better collect your own “Chaffee Royalties” right NOW! Continued Here.

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Dirt Cheap Dirt
By Chris Mayer

“Taking the long view, we are running out of dirt.”
— David R. Montgomery, geologist

Over the summer, Iran bought a large amount — more than ONE million tons — of wheat from the U.S.

That’s something we’ve not seen in 27 summers. In Iran’s case, a tough drought cut the wheat harvest by a third, forcing the country to look abroad. But still, the fact that Iran had to come to the U.S. is telling. It’s like Lee asking Grant for rations in the summer of 1863. As one analyst put it: “Do you think Iran would come to the U.S. if they had any place else they could buy it… They’re searching the world for wheat. They’re buying the U.S. because it’s the only thing they can buy.”

Markets, like great unscripted dramas, develop their own plotlines as time rolls on. Now unfolding is a new plotline in the agriculture boom. It begins with the fact that there are fewer and fewer options these days for importers looking for large quantities of high-quality grains. But it speaks more to a deeper issue: an emerging shortage in fertile soil. Yes, we’re running out of good dirt.

In fact, fertile soil — good dirt — may become more important to land values than oil or minerals in the ground. Some say it is already a strategic asset on par with oil. As Lennart Bage, president of a U.N. fund for agricultural development says, “Now fertile land with access to water has become a strategic asset.”

Doubtful? Consider rising export restrictions around the globe, which act as a sort of fence keeping the goods within borders. India curbs exports on rice. The Ukraine halts wheat shipments altogether. The number of grain-exporting regions has dwindled, like the vanishing buffalo herds. Before World War II, only Europe imported grain. South America, as recently as the 1930s, produced twice as much grain as North America. The old Soviet Union, for all its faults, exported grain. Africa was self-sufficient. Today, only three major grain exporters remain: North America, Australia and New Zealand.

No surprise, then, to find faith in the global food supply at generational lows. So begins the scramble to secure farmland. Saudi Arabia, for example, is particularly at the mercy of the winds of global agriculture. It has little ability to produce its own food. The kingdom, reports the Financial Times, “is scouring the globe for fertile lands in a search that has taken Saudi officials to Sudan, Ukraine, Pakistan and Thailand.” Saudi Arabia’s quest is not one it pursues alone. There are many hunters.

The UAE has also been looking to lock down acreage in Sudan and Kazakhstan. Libya is looking to lease farms in the Ukraine. South Korea has been poking around in Mongolia. Even China is exploring investing in farmland in Southeast Asia. While China has plenty of cultivable land, it does not have a lot of water.

“This is a new trend within the global food crisis,” says Joachim von Braun, the director of the International Food Policy Research Institute. “The dominant force today is security of food supplies.” Food prices reflect this crimp in supply.

The mainstream press focuses on issues such as population, dietary shifts and the impact of biofuels. One thing that doesn’t get talked about much may be the most important thing of all: A growing shortage of quality topsoil. Call it the topsoil crisis.

Quality soil is loose, clumpy, filled with air pockets and teeming with life. It’s a complex microecosystem all its own. On average, the planet has little more than THREE feet of topsoil spread over its surface. The Seattle Post-Intelligencer calls it “the shallow skin of nutrient-rich matter that sustains most of our food.”

The problem is that we’re losing it faster than we can replace it. And replacing it isn’t easy. It grows back an inch or two over hundreds of years.

This is not lost on certain far-seeing investors. Jeremy Grantham, the curmudgeonly head of the money manager GMO, wrote about soil depletion in his last quarterly letter. “Our farmers are in the mining business! Yes, the soil is incredibly deep, but it is still finite.” For every bushel of wheat produced, we lose two bushels of topsoil.

Until the final decades of the 20th century, the amount of new farm acreage added to the mix by clearing land offset the losses on a global basis. In the 1980s, the amount of land under cultivation began to fall for the first time since humble early humanity began to farm the rich land around the Tigris and Euphrates. It continues to fall today.

We lose topsoil to development, erosion and desertification. “Globally, it’s clear we are eroding soils at a rate much faster than they can form,” notes John Reganold, a soils scientist at Washington State University.

Estimates vary. In the U.S., the National Academy of Sciences says we’re losing it 10 times faster than it’s being replaced. The U.N. says that on a global basis, the rate of loss is 10-100 times faster than that of replacement.

In any case, it seems safe to say that good dirt is in short supply. The obvious investment conclusion: Buy farmland. That’s hard to do as an individual investor, although there are at least a few options.

More investment ideas will surely surface as time goes by. The topsoil crisis has a long way to go. It’s not going to resolve itself anytime soon. In the meantime, though, investors may want to rethink the phrase “cheap as dirt.”

Joel’s Note: Having been fans of Chris’ work for some time now, we’ve noticed a distinct and exciting pattern to his method. Chris’ “opportunity from crisis” approach leads him to first identify and investigate shortages, bottlenecks and other such occurrences in the natural world. He then builds upon these observations, using his critical thinking as an ex-banker, to extract ways to “play” these crises to the financial advantage of his readers.

In the past we’ve seen him identify, among many other examples, the water crisis. Chris was among the first to “play” water, giving his readers a unique opportunity not only to get in early and invest in the companies determined to solve the crisis, but also to make a lot of money along the way.

You can check out real estate trusts and companies with large land holdings in areas of richly arable land to ferret out some potential “dirt cheap” plays on Chris’ top soil idea…or you can let him do the leg work and email you his findings.

One thing we have learned from observing his method over the past few years is that, by the time his readers have made their money on this idea, Chris will have the next one lined up and ready to go. For more information, feel free to check out one of the reports Chris recently sent us right here

—- Five Ways To Play Gold’s New Bull Market —-

From Hulbert’s No 1-Ranked Advisory Letter Over 5 Years, Our Most Shocking Forecast Yet…

GOLD $2,000

“I’m so sure gold will soar higher I’ll even make you a guarantee… plus, I’ll give you five entirely new ways to play the trend…”

“Including one hidden way to snap up gold… for less than one penny per ounce…”

How can that be possible? Give me the next four minutes and I’ll show you how…Read On Here

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[Rude Endnote: Be sure to check back in tomorrow for a few “chicken longs” offered up by the collective Rude Brain Trust (that’s you!).

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com