| Be Fearful, Be Brave
Laguna Beach, California
Friday, August 3, 2007
The full wrap from last week's Investment
Symposium,
Another bank bites the dust – the latest subprime casualty,
The long shuffle towards extinction, two free issues of the Strategic
Short Report and much more...
-------------
Eric Fry, reporting from Laguna Beach, CA...
Another day, another bank bites the dust.
Yesterday morning, Accredited Home Lenders shuffled
down the somber, ignominious corridor toward extinction.
"We face significant challenges due to adverse
conditions in the non-prime mortgage industry," the beleaguered bank
declared in a regulatory filing, "and we cannot assure you that we will
continue to operate as a going concern." The announcement sparked a
growing concern that ANY home lender will survive.
Investors reacted to Accredited's disclosure as if it
were a surprise. The stock, which trades under the unforgettable symbol,
LEND, shed another 40% of its rapidly disappearing market value. We
wonder why anyone would want any part of the remaining 60%.
Accredited's Web site features the cheerful faces and
optimistic corporate jargon of the bygone mortgage boom. But there is no
joy in LEND-ville now... nor in the offices and cubicles of any other
mortgage-lender in the land. Michael Perry, the CEO of Indymac Bancorp,
the ninth biggest U.S. home lender, complained yesterday that the market
for mortgage bonds has become "very panicked and illiquid...The private
secondary market is not functioning."
If ever the editors of the Rude Awakening were tempted
to utter the phrase, "we told ya so," we would probably utter it now.
(But we would never utter that odious phrase; somehow it always invites
disaster.) As faithful readers would be well aware, the Rude Awakening
has been wringing its hands over the housing and lending industries for
about two years.
As the housing/mortgage boom slowly evolved into a
bust (very, very slowly), we would often ask ourselves, "If even we are
able to recognize this obvious disaster-in-the-making, why do so many
investors fail to protect themselves? Why aren't they running in the
other direction as fast as possible?"
Some disasters are impossible to unavoidable. Others
are almost impossible to avoid avoiding. The mortgage-lending crack-up
would seem to fall into the latter category. Prudent investing relies
upon avoiding the avoidable disasters. But when markets are flying high,
prudence is boring; that's the bad news. When markets are tumbling,
prudence is still boring, but that's the good news.
"Whatever happens will happen," Doug Casey remarked
during his presentation last week at the Agora Wealth Symposium, "just
don't let it happen to you." Many of the other presenters, including
your California editor, offered a few guesses about what might happen
next, while not forgetting to offer a few ideas about how to make good
things happen to your investment portfolio.
All week long, the Rude Awakening's "roving reporter,"
Monica Day, has been presenting highlights from the Symposium. In the
column below, Monica offers a few of the highest highlights...
-- Outstanding Investments Special Report --
The Shocking New Expos Washington and Wall Street
DON'T Want You to Read...
Our 2007-2008 Forecast:
4 Groundbreaking New Market Moves,
3 Earth-Shattering Events and
1 COLOSSAL DIRTY SECRET!
Don't look now, but you just got ripped off...that's
right, swindled. By one of the most scandalous stock market and
political SCAMS of the last 100 years!
Click
Here For More.
------------------------
Be Fearful, Be Brave By Monica Day
There's a fundamental rule about investing - you've
probably heard it before: Be brave when others are fearful, and fearful
when others are brave.
Bill Bonner, editor of Daily Reckoning, opened the
Eighth Annual Agora Financial Investment Symposium by suggesting that
most people are braver than they've ever been. And that means the rest
of us should be very, very afraid.
He's right, of course. Hedge funds are taking in more
money than ever...despite the questionable nature of their holdings.
Twenty thousand new condos are under construction in Miami...despite the
current crisis in the housing sector and the ticking bomb that is
subprime lending. The Dow is hitting new highs...with some mainstream
commentators calling it the greatest economic boom ever.
Indeed, Bonner agrees it is "great." But more like how
the "Great War" and the "Great Depression" were great.
It begs the question - what should you do when you're
fearful?
"Nothing," Bonner explains. But that's hard when you
have money.
So what exactly constitutes nothing?
If you're a regular reader of these pages, Bonner's
answer won't surprise you a bit: Buy gold.
Doug Casey...the Mogambo Guru...and a number of
speakers have agreed. Although gold is already up to a 27-year high, it
still seems cheap compared with the state of the economy - and the risks
the market is facing - right now.
Doug Casey ran through a list of other asset classes
and gave his reasons for not wanting his money in them, and he came to
this conclusion:
"Where should your money be? GOLD! That's it.
Honestly. I've looked at everything and anything - I'll buy anything if
the price is right. Gold isn't just going through the roof - it's going
through the moon. Mark my words, the gold bull market hasn't even really
started...."
And of course, the Mogambo Guru had his own unique way
of making a gold recommendation:
"Run out and load up on gold...and in the future when
gold prices are astronomical and there's chaos all around you...you'll
look around you and notice that you're rich and everyone else is poor
and you'll say, wow, that Mogambo dude was right. It's a shame he was
such a hateful, detestable little man. And you'll be right...but you'll
be rich! So who cares..."
Of course...the "buy gold" line of thinking was not
\unanimous. Some of the experts and analysts at the Symposium offered
worthwhile alternatives to simply buying gold. Natural resource expert
Rick Rule was one of them.
Rule believes that you must be brave if you're going
to invest in natural resources. Not crazy, mind you. But brave. Meaning
you have to be a discriminate investor. You must buy when others are
selling, sell when others are buying. This tactic, Rule admits, "is
psychologically hard, but functionally easy. And it's the only way to
make money consistently in the volatile resource markets."
Byron King, editor of Outstanding Investments,
examined investment opportunities among oil and gas stocks. Because the
world is no longer awash in oil, King declared, the energy sector – both
traditional and alternative – will be awash in great opportunities.
The "cheap oil" days are over, he warned, which means
the energy-dependent American lifestyle will become costlier to
maintain...maybe much costlier. "We've invented the cheap-energy system
that has given us prosperity and freedom," King explained, "now we begin
the descent. We'll either have to invent our way out of it, or go back
to the way it was before."
He was talking, of course, about our petroleum-based
economy... in the face of Peak Oil. Once mocked, denied and ridiculed,
the realities of Hubbert's theory are now coming to pass as, one by one,
the world's oil fields pass their peak production rates and ease into
decline.
If people like Byron King and Bill Bonner are right,
the shock of recognition is going to come. But the flip side of this
looming societal trauma, says King, is that all kinds of energy
companies will make all kinds of money.
Our resident Maniac Trader, Kevin Kerr, also banged
the natural resource drum - but to a slightly different beat: Food.
More specifically - how in the world is China going to
feed all those people? Even with its one-child policy in place, the
population of China is expected to go from 1.3 billion today to 1.49
billion by 2025. But only 11% of China's land is arable farmland.
Compare that with 26% in the U.S. to feed a smaller population and you
can start to see for yourself: China is in desperate need of a solution.
Plus, it is struggling with other issues. Combine
factors such as soil erosion, inadequate water supply, lack of qualified
labor for farming, lack of modern farming equipment and methods and
extreme weather patterns, and you've got a darn good crisis in the
making. But crisis spells opportunity.
A lot of bad things might happen in the world. Some we
can foresee, while others will be like the proverbial Black Swan -
completely unanticipated. But if you pay attention...and play your hand
right...the bad things shouldn't happen to you.
Doug Casey said it best...
"Internationalize yourself. Keep your citizenship in
one country, your bank account in another and live in another...treat
the world as your oyster."
Joel's Note: All the presentations from the Agora
Financial Investment Symposium are available on a special CD. Whether
you were lucky enough to attend and wish to review some of the material
or you simply want to get a glimpse at the array of investment insights
from the event. Order your copy here:
Agora Financial Investment Symposium
Cheers,
Joel Bowman
Rude Awakening
aussiejoel@the-rude-awakening.com |
