Greg's Note: In January, a new year began. The promise of a fresh start for so many aspects of life, the economy included. Boy did we get off to a rough start. Energy and Scarcity Investor's Byron King is sure glad to see the first quarter of the year come to an end. I think we all share his feelings. Enjoy, and send your comments to the managing editor here: greg@whiskeyandgunpowder.com Whiskey & Gunpowder
I AM SURE GLAD TO SEE THE FIRST QUARTER of 2008 behind us. It seemed as if every couple of days there was more bad economic news. Each announcement was worse than the last. The banks, investment houses, hedge funds, etc. just pumped out the bilges with their financial gray, brown and black water. It didn't matter if the tide was coming in or going out. The whole economic bay seemed to be polluted. As the quarter unfolded, it became clear that the world's credit system was drifting aimlessly, like a ship sailing with no wind. A lot of business that should have gotten done just did not happen, for lack of funding. Funding went away because risk aversion kicked in with a vengeance, and for a very real reason. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Introducing the "Oil Vacuum" Only one company has the capabilities of unlocking one of the biggest oil deposits in the world. Some have already called this the best invention of the past year and soon it could make you $65,500. Time is running out to get in on this great new development. Click here to find out this company… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The last 12 months or so have been a time of re-pricing risk — and this occurred on a global scale. But the re-pricing was not orderly. The U.S. dollar was steadily drifting downward in value, and prices for most things were readjusting just on this monetary basis alone. Add to this some severe industrial disruptions, from power shortages in South Africa to floods in Australia to economy-stopping winter weather in China. Closer to home, the downward re-pricing of risk rapidly became a collapse as flaws in the U.S. rating agency process bobbed to the surface. With so much distressed commercial paper floating around, many people were paranoid about risk. It was like the old game of "hot potato," except nobody could pass their potatoes onto the next guy down the line. For example, in one major presentation, I heard General Electric CEO Jeff Immelt spend a large part of his discussion defending GE's "triple-A credit rating." Normally, Immelt would be up there slapping the pointer against the screen and bragging about all the great products that GE makes and sells. Instead, he was busy trying to "prove a negative," that GE does not hold bad paper in its money operations. But Immelt believed he had to defend GE's stock price by dispelling fears of a rating markdown. And through it all, the resulting stock market gyrations were a reflection of investor confusion about the future. Are we at the end of something good? Are we at the beginning of something bad? Is this the beginning of the end? Or is it only the end of the beginning? Really, what comes next? Will credit markets liquefy? Or will they stay dried out? Can we do business? Or should we hold tight and sit on the cash? New York Times columnist Paul Krugman recently told Fortune "Large parts of the financial system will have to be reinvented." And there's no argument from me on that one. But so much of the financial system is broken that the question is where to even start. The Flipping Industry It is apparent that much of the old way of doing business — particularly in the realm of lending money — was rotten to the core. In my view, it begins with the dollar itself. The dollar has been steadily deteriorating in value for decades, so inflationary expectations are part of the worldwide consciousness. That is, just because of the long-term decline in the value of the dollar, most people expect most things to go up in price most of the time. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ And You Thought $3 Gas Was Expensive Get ready for an oil war, the likes of which we may have never seen. Not since the energy crisis of the 1970s have we seen such a rise in the price of fuel. Through summer and into the end of the year, we can expect oil to go higher still. How will this effect you and how your investments? Click here to find out… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ So is it any wonder that people developed a "speculation expectation"? This fed into an entitlement mentality, as well, that tainted every rung of the credit ladder. A lot of people wanted to buy and flip, whether it was houses or stocks or commodities. So other people lent to people to enable buying and flipping. Flipping became a dominant, if not defining, element of the financial "industry," of sorts. The Money Was Just Too Good But what an industry! For example, in the past five years, many people just plain lied through their teeth on everything from credit card applications to mortgage applications to the lending documents for multibillion-dollar takeovers. It was pure and brazen fraud in many instances, verging on burglary in plain sight. The next level up the food chain — the brokers and loan officers — often just looked the other way and rubber-stamped the papers. "Hey, not my problem." This kind of bad buck-passing went all the way to the top of some firms, many with familiar names. There in the ethereal reaches of the nice office buildings in Irvine, Calif., and Fort Lauderdale, Fla. — let alone Wall Street — the chief executives knew, or should have known, how risky the portfolios were becoming. But these corporate worthies let it happen. The pressure to "make the numbers" was too much. The money was just too good. The bonuses were too sweet. And besides, there is always the old excuse that "Everybody does it this way." Yet it was not for nothing that the ancients defined greed as a deadly sin. At each step of the ladder of financial deceit, people just let it slide. They should have known better, and maybe they did know better. Now looking ahead, we have a hell of a rocky road before us. And can we as a society really "regulate" our way out of that situation? Or is there a systemic problem with deeper roots? Really, what do the Furies have in store for us? Until we meet again… P.S.: While the financial system works to fix its current state of turmoil, we face several other challenges in this country and around the world. The scarcity of our precious resources has reached a critical level and big changes will be made. That's why we're offering my Energy and Scarcity Investor service for its lowest price ever. Click here to see the energy plays I'm recommending. |
Whiskey & Gunpowder Special Reports $1,000 Gold and Rising... 5 Entirely New Ways To Play the Gold Trend The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to lemmetry@gmail.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
