Agora Financial’s Rude Awakening

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· Gold busts through $800 over the weekend in flight to real safety,
· How turning Japanese has gone from impossible to inevitable,
· Two recession-proof stocks in the second Agora Financial Webinar and more…

Joel Bowman, reporting from Dubai in the Persian Gulf…

In all our excitement over gold’s dramatic breakout yesterday, we neglected to mention another, extremely important tidbit of news that directly effects your investment security.

Towards the end of last week, our publisher sent around an inter-office email announcing that the second installment of our Emergency Retirement Recovery Series was just about up and running. In fact, the webinar goes live this afternoon, around 6pm, EST.

Today’s presentation will feature Rude regular, Chris Mayer, talking about the treacherous conditions out there in the market and the best ways to protect your hard-earned capital. As an added bonus, Chris will divulge the names of two companies (including tickers) that he feels are oversold and ripe for the picking.

Despite your editor’s absent-mindedness, there’s still time to sign up for the free presentation. Simply drop your email into the box at this link and viewing instructions will be promptly forwarded to you.

And now on to Bill Bonner with a few words on turning Japanese. Please enjoy and forward any comments to the address below…

— Special Gold & Options Trader Report —

Urgent Trading Bulletin: Gold broke through the $800 mark on the weekend and continues its march higher in early trading this morning.

Things are getting very jittery in the market right now and the next leg of gold’s bull market could begin any day…

Luckily, you can still get in at a relatively low price…and not the popular, mainstream, mega-producers you might be thinking about either.

Read on Here to learn about how a handful of little-known “Vancouver leapers” could make you $1,000, $5,000 – even $40,000 – in a single day!

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Land of the Rising Sun…Has Officially Sunk
by Bill Bonner

As if the poor Japanese investor hadn’t had misery enough! He’s been beaten up for the last 18 years. He was whacked when Japan, Inc. went bust in 1990. He was smacked when stocks fell 70%- 90% during the ’90s. He was racked with pain when property collapsed to as little as one-tenth its late ’80s value. He was starved for yield when the Japanese Central Bank dropped its policy rate to zero and kept it there for six years. He was tortured over an entire decade as his government wasted $1 trillion trying to force him to spend and invest. And he was hung by his thumbs in four separate recessions. You’d think Mr. Market would have the grace not to kick him when he was down.

When the sun rose on 2008, the typical Japanese was still in a fetal position, with his head down and his wallet closed up tightly. But along came the sell-off of 2008 – and he got the boot again. The Nikkei fell another 50%. The Japanese investor who bought stocks in 1982 when he was 35 years old is now 61…and his stocks are not worth a penny more! And this week he got the news that the Japanese economy is once again in recession. Today, we feel his pain – not so much because we sympathize with the Nipponese themselves, but because now we are Japanese too.

The G20 nations met in Washington last weekend, hoping to get a little preview of the future. They thought they might do a little editing before the film was released to the public. But while the Japanese example was available for all to see, no wanted to look. And so, the meeting came to an end and the heads of state left town with a clear conscience; while they had done no good, at least they had done no harm.

Even seasoned hacks seem to have no idea what is going on. “Barron’s” has been putting out a financial weekly since 1921. You’d think in all that time they’d get a little idea of how things worked. Nope. The best advice they could give to President-Elect Obama was the same program that didn’t work in Japan: protect the dinosaurs…and spend more public money. Curiously, the paper wants to bail out Ford and GM but let “Chrysler go under.” (What does Barron’s have against Chrysler? Maybe the publisher owns one of its cars….)

Since neither pundits, ministers plenipotentiary nor Wall Street pros pre-penitentiary have yet explained the crisis, it falls to us to do so. We will pass over what went wrong; everyone now knows. But we offer an important nuance: this is not a typical business cycle recession. The idealized business cycle downturn came about after an economy “overheated.” Labor rates rose and the cost of living went up. This consumer price inflation forced the central bank to raise rates, causing the economy to “cool off” again.

Today’s recession in America and Britain is a credit cycle recession; it is different. For proof, we offer exhibit A: a corporate bond from International Paper Company with a yield of nearly 10%. Compare that to the yield on U.S. Treasury paper – barely one tenth of one percent on 91-day T-bills. Even the 10-year Treasury notes pay less than the official rate of consumer price inflation. The “spreads” between corporate bonds and U.S. government bonds are wider than at any time since America’s Great Depression. Why?

Investors all over the planet are taking a beating. Mr. Market has taken a cudgel to stocks, property, consumer spending and the economy – just as he did in Japan during the “Lost Decade.” People are afraid to lend and afraid to borrow; they worry that the money will be knocked senseless before it finds its way home.

This time, the economy did not overheat…nor did labor rates go up. And when the bubble popped, the pin was not higher lending rates. This bust was caused by too much credit, not by too little. It is what economist Richard Koo calls a “balance sheet recession” a la Japan in the ’90s. That is, it is a time when businesses, investors and householders realize that if they don’t cut back they could go broke.

And unlike the more typical recession, this is a slump the feds can’t control and can’t cure. They can offer easier credit; but more debt is just what both lenders and borrowers are most afraid of. The feds can offer more props, more handouts, and more public spending too, just like Japan. But all they are doing is retarding the correction. Mistakes of the bubble era need to be fixed. Balance sheets need to be brought back into balance. There’s no way around it. Japan proved it.

Just a few months ago, investors reached for the highest yields they could get. Now, they fold their arms, clutching to their breasts the lowest-yielding paper on the planet. Once they believed in capitalism and its bonds. Now, they want nothing that does not have the seal of the US government on it. A few months ago, they saw no danger. Now, they see nothing else.

Years ago, driving out of Paris for a long weekend, we tried a diversion:

“What do you want to be when you grow up?” we asked the children. To our surprise, among tomorrow’s pilots and ballerinas was one little 6-year-old with a strange itch: “I want to be Japanese,” said Henry.

That was 12 years ago. What seemed impossible then seems inevitable today.

[Joel's Note: Bill Bonner is the founder and editor of The Daily Reckoning . He is also the author, with Addison Wiggin, of the national best sellers Financial Reckoning Day: Surviving the Soft Depression of the 21st Century and Empire of Debt: The Rise of an Epic Financial Crisis .

Bill’s latest book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics, written with co-author Lila Rajiva, is available now by clicking Here: Mobs, Messiahs and Markets

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[Rude Endnote: A quick look around the markets today and we see our favorite yellow metal has stacked on another $17 on the back of heavy trading volume in Asia and Europe. Could this be the start of something beautiful? Let’s not jinx it by saying any more.

Elsewhere in the commodities sector, a persistently low oil price is still weighing on the minds of our severely indebted neighbors here in Dubai. A barrel of their dwindling export fetches just over $51. Interestingly enough, that’s about $6 less than what the Saudis – the world’s largest exporters – need just to balance their bloated, welfare state budget, according to estimates by Citigroup.

Predictably, this has caused quite a stir in the Kindom where production on two major refineries was put “on hold” and development on the $9 billion Manifa project has also slowed. The latter project was expected to pump 900,000 barrels per day from a giant offshore oilfield when it is finished…whenever that will be.

In other market news, most major indexes across Europe and Asia climbed this morning. Hong Kong’s Hang Seng was about the only notable exception, falling just under 1.6%. Elsewhere in Asia the Nikkei rose 2.6% while the Aussies managed to eek out a 0.25% “rally.”

In Europe, France’s CAC, Germany’s DAX and London’s FTSE all faired much better, up between 3.5-4.7% as we write to you just now.

That’s all from us today. Makes sure you tune in for this evening’s free webinar with Chris Mayer and we’ll catch you again tomorrow morning.

Until then…

Cheers,

Joel Bowman

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