Agora Financial’s Rude Awakening

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Taipei, Taiwan

• Market slips as unemployed consumers cut back spending,
• Three depression survival stocks for your portfolio,
• Join us in Vancouver for the “Decade of Reckoning” and plenty more…

Joel Bowman, reporting from Taipei, Taiwan…

Newsflash: Broke people with no access to credit don’t go shopping.

No, we’re not making this up. It’s true. But what about broke, unemployed, homeless people with no access to credit who live in a shrinking economy led by a bunch of thieving Washington D.C. goons? Nope. Turns out they don’t shop either.

“U.S. Retail Sales Unexpectedly Drop as Jobs Evaporate,” announced Bloomberg as markets tumbled (Dow -1.71%) on the news yesterday.

The fact that this comes as a shocking revelation to anyone is shocking enough for us. Economists, meanwhile, projected retail sales would rise by as much as 1.2% for the merry month of March. Strangely enough, they sank by almost as much (-1.1%).

So, what happens to consumer economies when consumers economize? (Note to policy wonks: that’s not a riddle.)

Auto sales, which make up around 20% of all consumers’ spending, sold at an average 9.5 million annual rate in the first quarter, the weakest performance since 1982, according to Bloomberg. (Broke people don’t buy new SUVs, in other words.) Needless to say, that’s not good news for those living in the rusting auto-belt, where things are going from bad to worse for Detroit’s Big Three.

Already the nation’s “most unemployed state,” Michigan is bracing for more pain. General Motors Corp., the largest maker of the most unwanted cars in the U.S., is staring down the cold steel barrel of bankruptcy. Meanwhile Fiat’s CEO, Sergio Marchionne, has warned Chrysler unions to cut costs or risk being left at the altar of poorly arranged corporate marriages.

Dear, oh dear. What’s a C.E.Obama to do?

The President’s employers (that’s you) are already showing signs of restlessness in the ranks. Reports are circulating the Internet that anti-tax TEA party (Taxed Enough Already) organizers are planning to deliver one million tea bags to Washington, D.C. this morning as part of nationwide protests. It seems the working folk on Main Street are growing tired of bailing out jerks in Wall Street corner offices.

That’s understandable enough. Nobody wants to work for another person’s meal when their own soup bowl is empty, especially if that someone dresses in Armani suits and drives a Bentley.

But as any business owner knows all too well, there are only two ways to grow the margins of a healthy enterprise: cut costs or raise revenue. Hard as it is for most people to accept, the business of the U.S. government was broke long before the mob started demanding AIG execs’ necks.

It’s a sad reality indeed, but your 2009 tax money was spent a long, long time ago. It’s your great grandchildren’s standard of living you’re protesting for today.

Having lived high on the hog for far too long, Americans will soon witness their currency fall through the floor…or their taxes shoot to the moon…or both. One thing is almost certain: whatever happens won’t be popular. Already the cracks are beginning to appear in the Empire’s once shiny veneer.

In the column below, Rude favorite, Chris Mayer, suggests a few stocks you might like to consider for your own “personal bailout plan.” In the likely event that politicians do their job and make an even bigger mess of things, it will behoove you to have a Plan B, at least. Please enjoy…

— Chris Mayer’s Special Situations Invitation —

Urgent Retirement Recovery Alert:

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 “paycheck program” 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!

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Portfolio Recovery Plan
By Chris Mayer, editor of Mayer’s Special Situations

I’m not sure if the stock market has reached its ultimate low for the Great Bear Market of 2007-9. But even if additional declines lie ahead, there are probably a few stocks worth buying anyway.

In 1932, the U.S. floundered around in the depths of the Great Depression. What to do about it was a question on most people’s minds. The New York Times edition of August 14, 1932, reported on the solution offered by Henry I. Harriman, then president of the Chamber of Commerce. “H.I. Harriman Gives Recovery Program,” boomed the headline in big bold type: “Urges Beer at Once.” (Thanks to James Grant for sharing this headline.)

Well, this was during Prohibition. And why suffer the ills of a financial calamity stone-cold sober? Harriman also suggested a 25% cut in “all governmental budgets” and an overhaul of the tax system. Times do change, after all. It is hard to imagine such a person of prominence making that kind of proposal today.

In any event, the investor today finds himself in the worst stock market since the early years of the Great Depression. Unlike his forebear, he is free to drink beer. But like his forebear, he is likely wondering what to do. I have no political solutions to offer, but I have a portfolio recovery plan of sorts – some ideas as to what areas may do well in the years ahead, even if the economy continues to struggle.

I would invest in those areas of the economy for which there are real physical bottlenecks and scarcity issues: like ports, roads, pipelines and energy. At this very moment, investors are entering a window of opportunity to profit from global infrastructure construction and renovation.

President Obama plans to spend tens of billions of dollars on infrastructure projects. And he is not the only one. The U.K. recently announced a $30 billion stimulus plan – with huge chunks of money for infrastructure. Argentina quickly followed with its own big plan. The news agency AFP calls it “a massive public spending plan to pump more than $21 billion into Argentina’s infrastructure.” China has its own $586 billion New Deal, too, as we’ll see. Where is all that money headed?

A lot of this cash is targeted for public works projects to repair crumbling infrastructure, or build completely new projects. China’s stimulus plan will also include a fresh infusion of cash to promote alternative energy and green technology. Already, China’s infrastructure spending has grown at a pace of 20% annually for the last 30 years.

(The impact on China’s economy has been transformational. For example, new highways now connect small far-flung rural towns to much larger booming cities. As a result, the economic activity between the two areas is in full bloom. The amazing developmental transformation in China reminds me of the effect canals had on trade in the U.S. during the 1820s and ’30s. The Erie Canal alone cut transportation costs by 90%, according to Tomorrow’s Gold by Marc Faber. It linked the Great Lakes grain markets to New York. Canals more closely knit the interior part of the country with the Eastern seaboard, resulting in explosive growth in trade.)

How to pay for these stimulus plans is a question almost no country seems all that concerned with at the moment. There is this belief that you must stave off economic contraction at any cost. And so it has come to pass…

The U.S. government’s fiscal position is atrocious, with a deficit topping $1 trillion and the federal debt approaching $10 trillion. China is in much better financial condition. But China’s stimulus plan is also a very big bet. It’s about 14% of the Chinese economy. As The Wall Street Journal reports: “The central government likely will have to significantly boost its own debt sales to fund the stimulus.”

Both big expansion plans will probably end badly…from a monetary and fiscal standpoint. Often, these governmental infrastructure programs plans lead to wasteful spending and overinvestment. In government intervention, as in an Argentine steakhouse, everything gets overdone…Nevertheless, there is money to be made before the steaks turn to charcoal.

The infrastructure-spending plans around the globe have become a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit. All of which spells a possible golden age for those companies that make asphalt, water pipes, wind towers and the like.

This infrastructure idea is right in the wheelhouse of the investment themes we have been pursuing in Mayer’s Special Situations. Astec Industries (ASTE:nasdaq), for one, ought to benefit from the road-building efforts. Northwest Pipe (NWPX:nasdaq) has the U.S. water pipe niche nailed down. And ABB Ltd (ABB:nyse) should grab a share of any money for new power systems, wind or otherwise. It should be a nice ride for investors who get in now, especially as prices for these stocks have become so cheap.

Joel’s Note: You can check out more of Chris’ depression survival kit, including a free copy of the award-winning documentary, I.O.U.S.A, right here. You’ll want to be nimble though as inventories are limited.

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[Rude Endnote: Lastly today, Agora Financial’s conference director just informed us that spots are filling up fast for this year’s investment symposium in Vancouver. If you have attended our premier conference in the past, you know it’s a jam-packed few days, brimming with investment ideas, world-class speakers and, our own personal favorite event, the infamous Whiskey Bar Panel discussion.

To celebrate the ten year anniversary of our sister publication, the Daily Reckoning, the theme of this year’s event is “A Decade of Reckoning.”

You can find some preliminary details for the event here. If you want to lock down a seat now, feel free to contact Opportunity Travel on 800 926 6575.

We’ll have more updates as the closing date for registration approaches, so watch this space.

That’s all for today. Thanks for reading.

Until next time…

Cheers,

Joel Bowman

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