Agora Financial’s Rude Awakening

Jump to Comments

Baltimore, Maryland

• Gold crashes through the $1,050 per ounce mark…and keeps going,
• V-shaped delusions and sluggish to non-existent re-hiring,
• Plus, day and night…love and loss…paper and metals and plenty more…

Eric Fry, with a few words about life, love and the value of adversity…

“Love is blind,” the poets observe…But no need for dismay; loss of love usually restores complete vision.

Furthermore, lovers never complain about their blindness…at least not until they are squaring off in divorce court. At that point, the now-former lovers possess such acute vision that they can pinpoint flaws the Hubble telescope could not detect.

Blind love is not such a bad thing, however. In fact, it is usually much more fun than 20/20 solitude. But these two extremes go hand-in-hand…or arm-in-arm…or whatever. Without heartbreak; true love holds no value. Until one has suffered the agony of lost love, he or she (but usually, she) cannot fully appreciate the value of rediscovered love. In fact, he or she (but usually, she) might not even recognize true love when it finally arrives.

On the other hand, without having known the euphoria of romance; who would fear its counterpart, lost love? That fear sometimes keeps petty grievances in check…and mutes the inclination to gripe about an open toilet seat.

This interaction between love and loss typifies the bipolar forces that define and influence most of the human experience…including that part of the human experience that unfolds in the financial markets. (Your editor will complete this transition from love to finance momentarily. But patience please; the digression continues…)

A rapturous romance is exhilarating, it’s true; and a ruptured romance is depressing…but oh so illuminating…

“If we lived in a world without tears,” the blues singer, Lucinda Williams, mournfully muses, “how would misery know which back door to walk through? How would trouble know which mind to live inside of? How would sorrow find a home?”

Of course, tears are not merely meant to provide “lodging” for sorrow and misery. They are also meant to evacuate pain and clear the way for new joys or unexpected delights. In other words, some knowledge of failure is essential for creating a love that can flourish. Don’t take your editor’s word for it; just try conducting a long-term relationship with someone who has never been rejected by anyone; try building a loving relationship with someone who has never “loved and lost” – someone whose past is littered with romances that THEY, alone, ended. This individual’s love and devotion will be slightly more reliable than a cat’s…maybe.

But that’s okay. The loss of love produces personal growth, emotional development…and alcohol abuse.  Two of these three results are constructive. The individual who eschews substance-abuse to face the pain of romantic bereavement head-on gains the opportunity to evolve emotionally and to learn important lessons for the next time…like which secrets to reveal or conceal; or which personality quirks in your lover are mere idiosyncrasies and which are psychological disorders.

And once you begin to understand what’s healthy and what’s merely entertaining (for a while), you are on your way to something better…at least in theory. Most of us simply repeat the same mistakes over and over. (Perhaps the native languages differ; but the neuroses remain eerily similar).

Nevertheless, as we hurtle through our existence – buffeted by the extremes of love and rejection – we gain at least the chance to enjoy something better, richer, healthier. That’s what life’s adversity furnishes…the opportunity for something better.

In fact, almost every facet of life unfolds between extremes – between deluge and drought; between war and peace; between wealth and poverty; between no and yes; between No! No! and Yes! Yes!; between prosperity and recession; between darkness and light; between sunshine and rain; between male and female; between sobriety and intoxication; between vigilance and slumber; between toil and rest.

Bipolarity is simply the way of the world.  It’s the way the world works and behaves.  And in many ways it’s the way the world MUST work.  Without both sunshine and rain, crops do not grow.

Economies are no different. They require the pain of recession if they are ever to enjoy the fruits of robust growth.  Without recessions, economies cannot achieve their full potential. They cannot unburden themselves of inefficient industries or sub-optimal regulatory structures, etc. Without recessions, economies cannot clear the way for better, healthier industries.  They cannot kick out the old, lame enterprises, for example, or enable the “younger, hotter” enterprises… so to speak.

The US economy, thanks to the dubious policies of the Federal Reserve and US Treasury, has been clinging to the old, lame companies and industries… instead of pushing them out the door to make way for healthier ones.

“The biggest problem going forward is the U.S.,” billionaire investor, George Soros, recently remarked, “as that’s where consumers are over-indebted and the banking system is basically bankrupt. The U.S. will be very slow in recovery and can’t really get going. The United States has a long way to go.”

You see, dear investor, that’s what happens when you don’t allow bad businesses to fail; they just keep hanging around making your life miserable. They keep blocking the path to newer and better things.

Dan Amoss, editor of the Strategic Short Alert, provides a bit more detail in the column below…

— Your Guide To: Master FX Options Trader —

Currency Trading Breakthrough: At Last, the World’s Most Liquid, Recession-Proof Market is Open To You…

Finally…Forex Profits Made Easy

A way to trade our of the falling dollar that could land you fast, repeatable Forex profits like…

100% in one day
23.4% in 48 hours
33.24% in 7 days

_________________________________

Average = 52%
Average holding time = just 3 days

If you want fast, recession-proof gains like these, I must hear from you today.

——————————————

The Joys of Recession
By Dan Amoss

The big questions of the moment: What kind of economic environment do we face? And more important, what’s already priced into the stock market? Here’s my view on these themes: The real job creators in the U.S. economy, small businesses, will not expand hiring as expected. There are many reasons for subdued hiring plans; an emerging reason to avoid expansion and hiring will be heightened expectations that tax rates will soar in the future to pay for out-of-control government spending.

So I expect over the next several months, mainstream pundits and forecasters will start worrying about tepid hiring, even as the pace of job losses slows. As we “lap” the 2009 corporate cost cutting by early 2010, and top lines fail to rebound, earnings estimates will have to come back down. I’m amazed at how many sell-side analysts are modeling V-shaped recoveries in 2010 earnings. Most stock prices are disconnected from reality.

Another big question is how will policymakers respond to a sluggish-to-nonexistent rebound in hiring? The economically illiterate, and those with preconceived “big government” agendas, will use any crisis as an excuse to expand government. You’ll be ahead of the game if you realize — as many in the media and academia clearly do not — that the government has no resources. It’ll take money out of one of your pockets, skim some off for its cronies, and expect you to be grateful when they put some of it — debased by the Fed’s inflation, of course — back into your other pocket.

The labor market is dealing with a structural imbalance fueled by government-sponsored housing and credit bubbles. Many will call for the government to “solve” this labor market problem, which will cause a new type of market dislocation. By early 2010, some will push for the federal government to start hiring the chronically unemployed in “New Deal” type of programs.

Where you stand on this question will determine your expectations for the future performance of most stocks. I certainly don’t enjoy having such a bearish outlook on the economy, but it’s the conclusion I reach after weighing all the evidence about the real economy; the credit markets; and policymakers’ damaging, distorting influence.

For example, corporate CFOs and Treasurers are happy about the recent bull market in risk. They know much more about their prospects than outside investors, so their balance sheet management is revealing. In a word, the approach toward capital structure is “defensive.” Heavily indebted companies are flooding the market with follow-on stock offerings to pay down debts. They’re also taking advantage of the Pollyannaish mood of the corporate bond market to issue risky bonds at attractive rates, as default risk seems to be a distant memory of bond buyers. Many corporate bond investors have taken the Fed’s bait to reach for yield, regardless of credit risk.

Amazingly, credit risk is a quaint, distant memory for most, when it should be the first consideration for shareholders — especially shareholders of highly leveraged companies like banks and REITs. In leveraged companies, shareholders’ claims can evaporate very quickly when asset values deflate and cash flow dries up.

For banks in particular, credit risk often accelerates out of nowhere. Remember how many big-time investors bought stocks like the failed Washington Mutual because it appeared to be “well capitalized”?

It’s shocking how many banks the FDIC still deems to be “well capitalized,” despite the fact that foreclosure activity is accelerating.

Foreclosure activity is crucial to the outlook for bank earnings. Mortgage losses will become a big problem for bank stocks in 2010. Mark Hanson of Mark Hanson Advisors does great work on the details behind the headline foreclosure and housing price statistics — the kind of granular, non-ivory-tower research that’s missing in Wall Street and Washington, D.C. In an update a few weeks ago, Hanson wrote:

The chart below shows the national monthly notice-of-trustee sales (late stage) versus foreclosures (last stage) counts from March through August. In that short six-month period, there have been 390,000 NTSs that have not resulted in a foreclosure (circled in red). Many are on trial [modifications].

If we assume that 250,000 of the 390,000 are presently on a trial and 40% fail, then beginning shortly 100,000 new foreclosures will spit out over a short period of time that will be added to the foreclosures that will occur naturally for reasons mentioned previously. If 60% fail, then the number goes to 150,000. With foreclosures only averaging 73,000 over the past six months, this new stream of foreclosures is significant — it has the potential to double foreclosures over a single month.

The banking system has slowed down the necessary process of “working out” unmanageable debts. Deliberately delaying loan foreclosures and write-offs — whether through government edict or smoothing out loss recognition over time — has the effect of backing up the plumbing in the system of credit intermediation. It’s the post-1990 Japan scenario of sweeping bad loans under a rug because “we can just hold on until asset values come back.”

I’ve written repeatedly about the accounting for — and resolution of — toxic assets throughout the banking system, because I see it as crucial to the outlook for both the U.S. economy and corporate earnings. The longer this is delayed, the more likely the U.S. economy suffers a fate even worse than post-bubble Japan. We have a scenario of defensive, undercapitalized banks, combined with a huge population of effectively bankrupt U.S. consumers. This is a problem that requires comprehensive debt restructuring and resolution before we can have a sustainable economic recovery.

Net-net, the outlook for economic recovery is questionable, at best…which means that the outlook for rising share prices is even more questionable.

— From the Desk of Dan Amoss: Strategic Short Report —

Hidden Government “100-F Documents” That Let You Predict Which Stocks Will Go up or Down

Discover how one small group of Americans uses government-mandated “100-F Documents” to easily predict gains or losses for any household-name stock in America…

On at least 58 different dates, each year…

And how you can now use these same “secret” documents to post returns as high as 400 – 600% over the weeks ahead. Learn How Here.

—————————————–

[Rude Endnote: Another record high for our favorite precious metal overnight. Gold punched through whatever “resistance” the $1,050 mark could muster…then added another $8 an ounce by the time we checked it this morning. So, what’s driving the metal? Fear of inflation? Fear of hyper-inflation? Overflows of speculative cash from institutional funds regaining their appetite for risk? All of the above? A and C? Other?

Who can say, really. The specter of runaway inflation has been lurking for some time now, despite assurances from the Feds that they have an adequate plan to mop up all the excess liquidity they created to deal with the credit crisis. Could it be that investors have finally lost faith in the greenback, the world’s reserve currency? What started as a rumor earlier this week about a few oil-producing nations (among others) ditching the dollar has now spiraled into all out war against Bernanke’s bills.

Indeed, a large part of gold’s rise is due to the poor performance of the battered greenback. The dollar index made fresh two-week lows overnight as recovery hopes drove investors into the arms of higher yielding assets, including foreign currencies. The Aussie dollar, for example, is galloping toward parity with the U.S. dollar once again after a not-that-surprising interest rate hike from the RBA earlier in the week. Compared to the Aussie dollar’s gains, gold’s 18.1% for the year looks somewhat tempered. The Aussie is up about 24% against the greenback from Jan. 1.

The question now, of course, is what happens to these “riskier” assets – gold, emerging market indexes and foreign currencies – if “the recovery” dies on its derrière? Do investors still trust the greenback as the ultimate save haven? Will they scamper back to ol’ Uncle Sam’s unloving arms? Or will movie gangsters of the future produce suitcases full of reals, Aussies, or renmimbi to buy the world’s onscreen supply of drugs and firearms?

Stay tuned.

Until tomorrow…

Cheers,

Joel Bowman

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