But when the sun disappears and inky darkness fills the sky, Dubai’s cityscape lights up and takes on a magical quality.  Crowds fill its restaurants in the evening, the apple-scented smoke of the shisha in the air. “I love Dubai at night,” my host and friend — let us call him Andy — said as we sat out drinking and chatting on the balcony of his flat. “It’s like something out of Arabian nights.”

Andy is an example of what Addison Wiggin (my publisher and companion on this trip) and I have come to call a Penthouse gypsy. They go where they are treated best, wherever in the world that may be. They have money, own businesses and invest in real estate. They are smart and independent and value their privacy. And they aren’t living in the U.S. or the U.K or Europe.

Andy’s apartment sits on a man-made island in the middle of a man-made lake. It’s called The Old Town Island, even though it’s brand-new, because it looks like a part of old Arabia — or at least the old Arabia of Hollywood and Westerners’ dreams.

The Old Town Island stands in sharp contrast with the ultra-modernity of Dubai’s signature buildings, with their curves and sail shapes washed in multicolored lights. These structures give Dubai the air of an eccentric rich man’s playground. There is a casual indifference to costs. Only the rich could build such things in deserts.

For example, The Old Town Island sits next to the Burj Dubai, which is the world’s tallest building, at 2,684 feet. That’s nearly twice as tall as the Empire State Building. (The Middle East, by the way, held the record for tallest building for 3,900 years — thanks to the Great Pyramid of Giza — before the West took the crown.)

The Burj Dubai hotel will open soon. It is a symbol of Dubai, of its ambition and can-do spirit, its boldness and its wealth. By 2008, Dubai had as much property under development as Shanghai — even though the latter has a population six times as large. Everywhere in the world, there is a tug of war between utility and a desire to build pretty things. In Dubai, though, utility seems to lose. Instead, the goal is to make the largest, longest, tallest — you get the idea.

At the Burj, the smallest suite is 7,200 square feet. The electricity needs of this building in the desert are enough to power a small city. Think of just the power needed to pump water to its upper floors so you can flush a toilet. No wonder Dubai and the UAE (of which Dubai is a part) are starved for power.

No wonder, too, that the UAE has the largest carbon footprint per capita of any place on Earth. People here also use more water — 145 gallons per day — than any other people anywhere. Yet there is no river and hardly any water resources. The water resources Dubai enjoys comes from turning seawater to fresh water.

One question I kept asking myself on this trip was how sustainable all this is or could be. But that leads to some interesting and surprising answers about why Dubai exists at all.

Four Reasons Why Penthouse Gypsies Love Dubai

Don’t assume that Dubai is like Las Vegas, a sort of Arabian Disneyland in the middle of the desert. There was a reason why people settled here long ago — and why the Penthouse gypsies do so today.

The old Dubai actually had the best of the creeks of the southern Gulf. I visited the twisted old creek while in Dubai. Dhows still make their way across the Gulf to Iran, India and East Africa and back again, as they have for centuries. There isn’t a container in sight in this old port. The big commercial port in Dubai now is Jebel Ali — the world’s largest man-made port. But in this old port, goods are offloaded by hand, largely on the backs of Pakistani and Indian workers. The goods are stacked right offshore — sacks of pistachios, crates of cigarettes, boxes of toothpaste and other goods.

Dubai, then, is a port city. Its main business is trade. The ruling sheiks opened up Dubai as a free port to the world — no taxes, no hassles. “Free trade was mother’s milk for Dubai,” writes Jim Krane, author of the excellent City of Gold: Dubai and the Dream of Capitalism. Trade is what made Dubai wealthy. Dubai has more in common with the Venice of the 12th century… or with Singapore or Hong Kong today.

As with all free ports, it has had a history of being a haven for smugglers. Early on, traders would smuggle gold through here on its way to India. Gold, guns, slaves, diamonds, drugs — all ran through Dubai.

Of those, gold is the key driver. Dubai is still called the City of Gold. There are gold souks all over. People here seem to love their gold. While I was there rumor spread that the GCC — along with China, France, Japan and Russia — were having secret meetings in which they were planning to stop pricing oil in U.S. dollars. (The GCC stands for Gulf Cooperation Council and is made up of the six Gulf states, including the UAE.) Instead, a basket of currencies would replace the dollar. This basket would include gold. True or not, it helped generate some buzz in the gold market, sending gold to a new all-time high.

Today’s real boom in Dubai depends on a few key factors, and it’s not all about oil money. After spending some time here, chatting with Penthouse gypsies like Andy, I would boil it down to four successful ingredients:

Low regulations, low tax. This has probably been a Dubai advantage for a hundred years, but people here told us repeatedly how easy it is to set up shop in Dubai and how your privacy is protected. There are also no income, property or corporate taxes. Zero. (The city funds itself with taxes on hotel occupancy, liquor sales and restaurant meals, as well as permits for roads and such. Part of the budget also comes from the Sheikh’s business interests — such as Emirates Airlines and the aluminum smelters.)

In 2002, Dubai allowed foreigners to own property in so-called “freeholds.” That was a big milestone that kicked off a wave of immigration. So now there are these freeholds where the Penthouse gypsies live in high style in very nice communities.

The backlash of Sept. 11. Before Sept. 11, Middle Eastern oil-exporting countries reinvested $25 billion a year in the U.S. After Sept. 11, that slowed to about $1.2 billion a year. Arabs no longer felt welcome in the U.S. and feared what might happen to their wealth. So guess where the money went?

Arab wealth started flowing back to the home countries. The economies of the eight states of the Gulf Coast grew 60% from 2001–08. “Cash poured into Dubai,” Krane writes. And Dubai’s growth rate topped China’s, averaging 13% per year.

Essentially, the repatriation of Arab wealth from the U.S. was a big driver and still continues to be today. As the Middle East region gets wealthier, a good chunk of that wealth will flow through Dubai.

Finally, the UAE fixes the value of its currency to the dollar — at least for now. What this means is that as the U.S. printed dollars, the inflationary effects were exported to Dubai. That put Dubai into trouble. Lots of speculative capital flowed into building islands in the shape of date palms or creating residential communities with robotic dinosaurs from Japan. Now Dubai is suffering through a massive real estate bust as a result (to the advantage of the Penthouse gypsy).

Still, Dubai’s important position in world trade is many layered, like a wedding cake. As Krane writes: “Dubai today is the Middle East’s capital of commerce, one of its biggest recipients of foreign direct investment, its top financial center, biggest port and airport and home of the largest number of foreign businesses.”

Quite a list, considering air conditioning arrived only in 1967. Today, Dubai is a key crossroads on the New Silk Road. It fills the gap between New York/London and Singapore/Hong Kong. And as long as Dubai is kind to money, the Penthouse gypsies will come.

For investors such as you and me, the Dubai story is part of the greater New Silk Road. Dubai’s and the New Silk Road’s booming populations need food, water and power. The increasingly larger cities need infrastructure. Its growing wealth needs a storehouse of value. On this latter front, the Penthouse gypsies we met all prefer gold and/or a mix of currencies, such as Norwegian kroner and Singapore dollars.

Regards,
Chris Mayer

November 12, 2009

Penthouse Gypsies Flock to Dubai was originally featured on Whiskey and Gunpowder

Guaranty Bank in Texas became the 81st U.S. bank to fail this year. It was the 11th largest bank failure in U.S. history. This kind of thing is becoming so regular it is hardly news when it happens.

But what’s interesting to point out about this one is that the FDIC sold Guaranty to Banco Bilbao Vizcaya Argentaria of Spain. This is the first time regulators have sold a failed bank to a foreign lender. Such a turn of events would have been unthinkable only a decade ago.

So the world turns. When it comes to the question of who has the money, it’s often a non-U.S. buyer these days.

Speaking of foreign buyers, there is probably no group of buyers more watched and coveted than Chinese consumers. Recently, the Financial Times had a piece that highlights things the Chinese like to buy.

This is important because the Chinese are becoming increasingly affluent in large numbers. Total consumer spending was $1.7 trillion in 2007, compared to $12 trillion in the U.S. But that number is growing rapidly. The FT focused on the new rich. China now boasts more millionaires than the U.K. The rapid growth of this group has companies all over the world spending more money and time figuring out ways to get in their pockets.

So what do the affluent Chinese like? Outside of ordinary things like flashy cars and booze and quirky things like ivory and dried seahorses, one thing was mentioned in the FT piece that caught my eye: The Chinese love gold.

“China loves gold in all its forms,” the FT reports, “as a reserve currency, jewelry, an investment.” I’ve mentioned in the past about how the Chinese central bank doubled its holdings of gold this year, but it’s more widespread than that.

The rising middle class in China also buys a lot of gold. Since 2007, Chinese consumers have been the second largest purchasers of gold jewelry in the world, behind only India. The FT points out those gold sales were up 28% year over year in May. Total gold demand for the year was up 21%, to 400 million tonnes. There are not too many sales of any kind going up that much in this financial crisis, but there it is.

The financial crisis and weak stock market have helped gold as people look for a place to park some money. I think gold will remain a good place to be for some time yet. And gold stocks have the stars lined up for them. Many are reporting falling cash costs, yet the price of gold is staying up here in the $900s — and is likely headed much higher. That means gold stocks are reporting good increases in cash flow, among the few sectors to do so.

The Growth Is Overseas

As to the larger picture, I think trends in overseas markets should continue to be a focus, and I will keep on an eye on them. The U.S consumer is pretty well tapped out, finally. The growth is overseas.

Over the weekend, Barron’s featured a worthwhile interview with Chris Wood, the Hong Kong-based strategist for CLSA’s Asia-Pacific group. He’s been on top of some of the bigger-picture developments in Asia for years — sniffing out trouble in Thailand before the Asian crisis in 1997, for instance, and, more recently, giving early warning calls on the global troubles that would emerge after the U.S. mortgage market imploded.

What’s Wood’s take today? “The financial crisis in the Western world will lead to a long period of anemic growth,” he says. “From a global investor’s standpoint, Asia and the emerging markets stand out as a place to invest.”

When you look at some of the data rolling in, it is hard not to see it. For instance, earlier this year, oil consumption in the developing countries passed the top 30 (OECD) countries for the first time. There are now more cars sold on a monthly basis in the top 16 emerging markets than there are in the U.S., Japan and the EU combined.

More opportunities will emerge, as many of these markets are only in the early innings of the most commodity-intensive part of their development. As a result, we’ll see a lot more power plants, water treatment plants and the like built over time. Then there are the agricultural needs, not only to support population growth, but to support the boost in biofuels.

Biofuel Boom

Steven Johnston at AgCapita, a firm dedicated to investing in agriculture, put together a worthwhile newsletter. In the latest update, the group shows how biofuel production is on the rise:

This trend will surely continue, as most of the oil-producing countries have in place biofuel targets whereby they mandate that a certain amount of fuel must be biofuel. AgCapita’s own research indicated that the biofuel targets in the U.S., the EU, Canada, Japan, Brazil, India and China alone could require the use of over 400 million acres of arable land, or over 10% of the world’s total. This is in direct competition with food production and should have a significant effect on crop prices.

What a lot of people overlook is just how fertilizer-, water- and energy-intensive these biofuels are. So agriculture remains another attractive market to invest in right now in what otherwise looks like a time of tepid growth. That means opportunities in fertilizer stocks, grain handlers, farm equipment and farmland.

Have a good week, and I’ll write you again soon.

Regards,
Chris Mayer

September 2, 2009

What Chinese Money Buys: Gold Goes Green was originally featured on Whiskey and Gunpowder

But with all the artificial stimulus money floating around, you can never be sure of what you see. Is this a real recovery or is it an artificially ripened tomato, and hence an imposter? When the stimulus money stops flowing will the recession get worse?

It’s hard to say, but let me give you a couple examples of distortions…

CNN’s bailout tracker reports that US government stimulus has totaled $2.8 trillion so far this year, with another $8.2 trillion in commitments. Most of this money has gone to the financial sector. Some of it has gone to infrastructure projects and to consumers (cash for clunkers, for example).

That is a lot of money. It is hard to say how all of this spending has artificially boosted economic activity in some sectors of the economy. It is obvious that such spending cannot continue indefinitely.

This has also been a worldwide phenomenon. There isn’t an economy of size that does not have some stimulus-spending program in place. Governments are spending money they don’t have. The result is widening budget deficits and higher debt levels.

First up, take a look this graph, from the Economist, which shows the industrial production of emerging Asia compared to the United States.

Looks like Asia is recovering pretty well. That chart shows the “decoupling” that became such a hot topic of discussion last year. The idea was that the emerging markets would not necessarily follow lockstep with the Western countries.

But this graph only tells a part of the story. China is one of the countries in “Emerging Asia.” China supposedly grew in the first quarter at an annualized rate of 15%. Yet, the government also spent a lot of stimulus money. As Eric Sprott writes in his latest letter to shareholders:

“The Chinese have injected a stimulus equivalent to 64% of their first half 2008 GDP in the first half of 2009… The Chinese government has effectively spent and lent enough in six months to buy 122 Ford Class aircraft carriers at US$8.1 billion a piece. It is akin to the US government injecting (and US banks lending) almost $4.5 trillion USD to its citizens and businesses before July 2009…an ungodly sum that would impact every asset class under the sun. Is it any wonder then that the Shanghai stock exchange has more than doubled from trough to peak since its November lows?”

Let me remind you that GDP is a clumsy way to get at an economy’s size. It is a figure that includes government spending. So, put another way, stimulus money this year is about 64% of the recorded economic activity in the first half of last year for China.

Where the Money is Going — Commodities

In some ways, the Chinese government spent well — investing in the commodities it craves. It’s locked down oil and gas assets, iron ore contracts, interests in rare earths and more. It’s put up power plants and laid down roads and pipelines. It’s made long-term investments in Africa and Brazil. Some of that will pay dividends down the road, if not already.

For instance, in the first six months of this year China became Brazil’s single largest export market. That’s the first time that’s ever happened. The Chinese and Brazilians are doing deals. For instance, China will lend $10 billion to Petrobras in return for 200,000 barrels of oil per day. China, in fact, has been active throughout South America, investing billions in mines, refineries, ports, and railroads.

These shifting patterns of trade always fascinate me. And we are living in an era of great change on that front, as new patterns emerge on a scale we have never seen.

It’s clear that China will have enormous needs for commodities over time. In the short-term, we are surely seeing distortions from the stimulus money. But the long-term demand is there nonetheless and the Chinese have a lot of money to spend.

Global Infrastructure is Still Getting Older Everywhere

In fact, infrastructure needs — especially in the areas of water and energy — are becoming more of a headline issue than ever. Not a week goes by where I don’t pick up a handful of stories of infrastructure falling apart somewhere. This, too, is a global story.

This week, for instance, there was a terrible accident in a Russian hydropower plant. Eleven people were killed and 65 were missing after water burst into a turbine room. It also destroyed the turbine. Besides the irremediable loss of life, it will take hundreds of millions of dollars and years to repair the demand.

As the FT reported, the accident “was a powerful reminder of Russia’s dire need for hundreds of billions of roubles in investment in its crumbling Soviet-era infrastructure.”

Putin’s government put aside $200 billion for infrastructure in two oil windfall funds, but that money is already being tapped for social spending programs and to help make up budget deficits. As in many places, including in the U.S., money set aside for infrastructure has been essentially hijacked by the political process and diverted to other uses.

Another story this week comes from Britain. Britain faces huge deficits in energy and the risk of widespread blackouts. Its energy complex is old and strained. The Economist reports: “The nuclear stations are simply too old to carry on: most are over a quarter of a century old. Around half have already been shutdown and are being decommissioned.”

About half of its electricity comes from natural gas, a legacy of its North Sea riches. But the North Sea peaked in 1999 and has been in steep decline ever since. Britain’s coal plants struggle under new pollution control rules and the effects of age. It’s an ugly situation that will cost a lot of money to fix.

The positive for investors is that there are several firms that are right in the sweet spot of this global infrastructure crisis. We own a few.

Regards,
Chris Mayer

August 25, 2009

The Effects of Epic Stimulus was originally featured on Whiskey and Gunpowder

There is rarely any kind of consensus that emerges from these sorts of things. However, it did seem that virtually everyone saw the folly and risks in the debt-laden U.S. economy. 

We all agree: Debt is the story of today’s economy. There is still too much of it. Yet the mainstream view seems to be that more of same is the elixir to see us out of this bust. In fact, debt issuances by governments are hitting new records.

Letís look at the U.S. government. It is spending money hand over fist. Thatís not new. What is new is that the bloated government will try to sell over $200 billion in Treasuries this week — a record amount of new debt. The U.S. is hoping more foolish foreign central banks will line up and absorb the deluge for pitiful interest rates. The 2-year note sells for a yield of 1.01% as of last Friday. 

Maybe Washington will pull it off. But one day, people are going to demand a better rate to take the government’s paper. At some point, the marketís appetite for puny yields will go away. When that happens, interest rates will rise significantly and debt prices will crash. Itís not a matter of if, only when. To continue at this pace is clearly unsustainable.

The crazy thing is that the U.S. government is not alone. Emerging markets are also issuing record levels of bonds. The Financial Times reports this morning that ìthe surge in issuance this year [hit] its highest point since records began in 1962. The biggest issuers include China, Brazil, Russia, South Korea and some of the Gulf states.

Incredibly, most seem to look at these debt issuances as positives for the global economy. The FT, for instance, opined (in the middle of its news story) that the debt sales were ìan encouraging sign for the world economy.î 

Itís a weird paradigm that thinks growing debt levels are a good thing for the global economy, but it is a mainstream view. Economists, lost in their models and abstract curves, preach the benefits of stimulus — printing money and spending and borrowing.

And people seem to eat this up.

From The Wall Street Journal, I give you another exhibit of this kind of thinking. Reporting on the growth of Asian welfare systems, the WSJ reports: 

Asian countries are beginning to build extensive social-welfare programs like those that long have existed in the West, a move they hope will encourage their people to save less, spend more and help put the region — and the world — on a stronger economic footing in the years ahead.

Remarkable, isn’t it? Save less and spend more to create a stronger economy. Only an economist could sell that idea. I think the average person on the street would not believe that if they saved less and spent more their household would be on ìstronger economic footing. 

All this debt also crowds out needed investment in the private sector. It all competes for the same pool of capital. It means the capital-starved mining and energy companies are finding it very costly to raise money. It means investment in real assets slows, so governments can prop up ailing banks and do other dumb things.

The fall in energy investing is already here. If you look at the oil picture, you find something interesting about where future supplies will come from. The IEA estimated as recently as November 2008 that the Canadian oil sands would account for nearly 70% of the increase in nonconventional oil production between 2009-2030. However, with the price of oil where it is, investment has been cut way back. Already, the Canadian Association of Petroleum Producers has revised its forecast for investment three times. Itís cut it from $20 billion to $10 billion currently.

It begs the question, of course, where the oil will come from. These swing producers, like the Canadian oil sands, canít stop and start very easily. They take time. And these swing producers need a higher oil price to entice them to invest in new projects.

All of this sets up another leg-up for oil prices. The same thing is happening really across the commodity spectrum as projects are cut or delayed. From an investorís point of view, you get a chance to buy stuff on the cheap.

China is certainly hungry for resources, and it is doing a lot of buying! 

In the 10 months since Lehman Brothers imploded, Chinese bidders have been busy, the Financial Times reports today. So far, they’ve announced bids totaling $50 billion. Of these, more than two-thirds have been in energy and mining.

Among those commodities China needs most is iron ore, used in making steel. In fact, cash prices for iron ore delivered to China topped $90 per ton for the first time this year. China is the worldís largest buyer of iron ore, and imports are up 28% this year.

Chinaís voracious appetite has at least one competitor worried: India. As with China, India too is a large growing market. It too needs iron ore to build its budding cities — power plants, pipelines, bridges and more.

India’s steel ministry believes that India should restrict exports to China to ensure Indian steelmakers have what they need at reasonable prices. Such a move would only make it more difficult for China to find iron ore. India makes 200 million tonnes of iron ore a year, about half of which winds up in China.  

So the takeaway from all this debt issuance is to invest in real assets. One day, the Treasury debt bubble will pop, and when capital starts to look around for where to go to preserve itself and grow, it will turn to those hard assets such as crude oil, gold, iron ore and more.

Consensus on the Treasury Debt Bubble was originally featured on Whiskey and Gunpowder

So, this reasoning goes, the greater risk is that asset prices continue to fall. This is the classic debt-deflation point of view. The theory seems to fit the facts of what we are seeing in the marketplace right now.

I don’t dismiss these arguments easily — and there is more to it than what I’ve given you here. I’ve spent some time going over the arguments of some of deflation’s most persuasive and sophisticated advocates: money manager Van Hoisington, economist David Rosenberg and others.

Still, I think the endgame is for inflation — which is when paper currencies buy less. Given the choice of holding U.S. dollars or real assets (such as gold or iron ore or land), I’ll take real assets.

Over the weekend, Thomas Donlan at Barron’s had a good analogy for it all. He asked what you would rather own as store of value, bananas or corn? The obvious answer is corn, because you can store it for months. Corn lasts longer than bananas. Fruit rots. You can also use corn for a lot of different things — corn flour, animal feed, etc. You can also arrange to sell corn into the future, say, by arranging to deliver corn so many days from today.

Corn can lose value, obviously, as can any real asset. But it is a better choice than holding the bananas.

Donlan likens money to bananas and natural resources to corn. “In the modern economy,” he writes, “a barrel of oil is much like a bag of corn… Paper money and bank balances are more like the bag of bananas.” When currency rots, we call that inflation.

The problem with the deflation arguments long term, it seems to me, is that you are betting against a government’s ability to destroy its own currency. Governments are seldom good at anything, but one thing they are undeniably good at is destroying their own currencies. The dollar has lost 95% or so of its value since 1913. That’s a pretty darn good job. Other countries have been even more thorough.

So that would be the way to bet. Deflation may prevail today, but the real question is for how long. My own crystal ball is frustratingly cloudy on the issue. But the great rewards in investing are always with the out-of-consensus view.

The upside from holding Treasuries seems hardly worth the risk of being wrong, for instance. On the other hand, if we are right about currency rot, then we’ll make multiples of our money on natural resource stocks.

The downside on many commodities seems low, because the prices have already corrected. In several instances, as with oil and natural gas and iron ore, we are already below the marginal cost of production for much of the industry. So unless we don’t need these things at all anymore, the simple economics of the businesses involved help support a certain price structure.

Worse Than Subprime

And anyway, as far as the case for gold is concerned, I’ve been arguing that it is less about inflation or deflation than it is about creditworthiness in general. I wrote about this in your May issue (No. 35), The Great Deleveraging.

Gold does well during times of credit troubles. It did well in the 1930s, for instance, even though that was largely a deflationary era. Banking troubles made investors turn to gold.

On that front, we’ve got plenty of banking troubles on the way. Today’s Wall Street Journal headline, buried in the middle of the paper, hints at what’s to come: “Pick-a-Pay Loans: Worse Than Subprime.” The piece begins:

“For the third straight month, option adjustable-rate mortgages are generating proportionately more delinquencies and foreclosures than subprime mortgages, the scourge of the U.S.”

These loans include only partial-interest payments. So the loan balances on many of these loans have actually gone up while housing prices tumbled. It’s a disaster. As of April 36% of these loans were at least 60 days past due.

These pathetic loans will mean more large losses for banks — in particular Wells Fargo, J.P. Morgan Chase and others who were active in these markets. Wells Fargo, the WSJ points out, has a mountain of this stuff — $115 billion of crap.

So as long as we have banking troubles, we have the potential for fear to return in a big way. And that is when gold does well.

In other cultures, too, gold is more naturally a part of the wealth-storing equation than it is in most Western countries. In places such as China, India and the Arab world, people see gold more readily as a store of wealth than the typical American or European. These areas of the world are on the rise, and their gold holdings are also rising.

Beyond this, gold stocks are cheap again. Gold also has a seasonal tendency to be weak in the summer months. So against all this, I’d use the market weakness in the gold price and in gold shares to pick up your favorite gold miners.

Have a good week, and I’ll write you again soon.

Regards,
Chris Mayer

July 22, 2009

Gold Stocks Take a Hit Plus Worse Than Subprime was originally featured on Whiskey and Gunpowder

Some of his early stories written in the 1930s reflect on the mood of the era. And even if you don’t care for reading about the 1930s, you’ve got to love Runyon’s way of capturing the voices of the times. For instance, “I put the old convincer on him by letting him peek down the snozzle of my John Roscoe.” That’s a pretty colorful way of saying you stuck a gun in somebody’s face.

In these stories, there is also that undercurrent of bad times. You never forget it. People view anybody who looks well with suspicion. Prosperity of any kind is seen as unreal in some way. As Runyon writes:

“You cannot tell by the way a party looks or how he lives in this town if he has any scratch, because many a party who is around in automobiles, and wearing good clothes, and chucking quite a swell is nothing but the phonus bolonus and does not have any real scratch whatever.”

There is also a macabre sense of humor. In one story, Runyon writes of being at a track in Miami. He’s having a run of bad luck. It goes on awhile and gets worse. “I wonder if I will not be better off if I buy myself a rope and end it all on a palm tree in the park on Biscayne Boulevard,” he writes. “But the only trouble with the idea is I do not have the price of a rope, and anyway I hear most of the palm trees in the park are already spoken for by guys who have the same notion.”

It was an era with an undercurrent of playful meanness, too. For example, look at the nicknames of some of the baseball players in the 1930s. Author Bill James wrote about this years ago. “In the ’30s, nicknames turned nasty,” he wrote. If you had a big nose, you were “Schnozz” — a nickname earned by Hall of Fame catcher Ernie Lombardi. If you were overweight, your nickname was “Blimp,” as in Frankie “Blimp” Hayes. Or just “Fats,” the nickname pinned on poor Bob Fothergill.

Some other nicknames used by journalists and forever affixed to players’ names in the registers: “Stinky” “Boob” “Boom Boom” (for a pitcher with a 38-69 career record) and “Suitcase” for anybody who had trouble sticking with a team. Joe Medwick walked with his toes pointed out and got stuck with “Ducky.” An outfield named Cuyler stuttered and they called him “Kiki” Cuyler. It was a brutal era.

I guess with bread lines, shantytowns and so many people out of work, no one cared about playing nice. In 1930s, you had to have thick skin.

Floyd Odlum: Making the Best of Bad Times

And more than just reading about the 1930s out of my own personal fascination with the period, there are also some practical benefits. There were people who made a lot of money in the Great Depression doing legal things. There is Floyd Odlum, for instance. He is sometimes described as the only guy to make a fortune in the Great Depression. (He wasn’t.)

I’ve written to you about him before. The reason to revisit him briefly is that James Grant also wrote a little about him in a recent Grant’s Interest Rate Observer. Grant calls him a “salvage artist par excellence.” “None of us can know the future,” Grant writes. “But like Odlum, we can make the best of a sometimes unappetizing present.”

Grant also managed to scrounge up a pretty good anecdote on Odlum. In the summer of 1933, when all the world seemed to be in pieces, Odlum strolled into his office, looked at his glum partners and said: “I believe there’s a better chance to make money now than ever before.”

Odlum liked poking around in the smoking wreckage of the 1930s. Bad times create wonderful pricing. I suspect if Odlum were still alive, he’d find himself very busy. There is a lot to look at now.

Scared? Read This

A friend of mine recently wrote to me about how he was looking at Potash (POT: NYSE) with “fear and lust.” It was a Hunter Thompson moment, and I knew exactly what he meant. Everything feels a little scary right now. At the same time, your rational brain gets excited about the great prices you see dancing on your screen.

“Fear and lust” sums up what it feels like investing in stocks these days…

Every investor will have to overcome fear to buy anything today. I hate to try to call a bottom. But remember that even in bad times, the stock market can put up stunning rallies. Jeremy Grantham at GMO makes the point about sitting on cash too long:

“In June 1933, long before all the banks had failed or unemployment had peaked, the S&P rallied 105% in six months. Similarly, in 1974, it rallied 148% in five months in the U.K.! How would you have felt then with your large and beloved cash reserves? Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”

Backlash From the CVR Energy Sell

I’ll end this week’s note with a quick word on CVR Energy, which we parted with after a little more than a year with a terrible loss. I always get lots of e-mail after every sell, no matter whether it was up or down.
I’ll reprint one of those e-mails… from my father:

“Your great analysis costs us $7,200 if we sell now. What happened to all that good stuff you wrote about it as far as the fertilizer plant and using its coke to run it? I thought (you thought) it was going to save it money, etc., on running the plant and make money on the fertilizer.

“Love, Dad”

Guess that will come out of my inheritance, assuming there is any. Well, a lot changed. Fertilizer prices tanked. Natural gas prices tanked, thereby making the company’s use of pet coke less appealing with all this cheap gas around. And gasoline demand fell, as did prices, thereby hurting the refinery. On top of that, there is the seeming inability of the company to get it together and deliver a clean set of results.

I suppose CVR Energy will bounce back from these lows at some point. If you want to hold out for a better price, that seems reasonable. But I’d rather own other things in this environment. Sorry, Pop. We’ll hit the next one!

Regards,
Chris Mayer

March 16, 2009

Fear, Lust and That 1930s Feeling was originally featured on Whiskey and Gunpowder

The noodle company got itself into some trouble. To simplify the story greatly, it basically lost a lot of money using derivatives to bet on dollar-rupiah movements. The loss suffered was, in fact, more than the capital of the company itself. At one point, Das writes: “What this had to do with producing noodles was a mystery.”

Exactly!

Unfortunately, this kind of story riddles the markets today like worms in an otherwise worthy cut of swordfish. There are so many of these incidences and they are ruining companies and investors across the world. It takes a nasty crisis like the one we are in to expose all these things. And the rot is extensive.

I want to share with you three little-reported events and one historical example that all show how pervasive this mindless risk-taking became during the last few years. They would be almost comical if they weren’t true.

First, consider the sad example of several Mexican and South American companies that made, large, company-jeopardizing currency bets. For example, Mexico’s third largest retailer, Controladora Commercial Mexicana (COMERCIUBC: MXK), recently filed for bankruptcy after losing so much money speculating in the forex markets. What does currency speculating have to do with selling tortillas, milk and eggs? Nothing. That’s the point.

Similarly, Sadia (SDA: NYSE), a poultry producer; Cemex (CEMEXCPO: MXK), a cement outfit; and Gruma in tortillas – all lost huge amounts of money on currency bets. Aracruz Cellulose (ARA: NYSE), the much admired pulp giant of Brazil, owes more than $2 billion to its banks for making bets on currencies that went sour. What was once a great franchise has been brought to its knees. It will take years to pay that back and debt payments now make up 40% of its pre-tax earnings.

The second example of mindless risk-taking is the story of so-called “portable alpha.” Apparently, the brain trusts that run pension funds thought this strategy sounded like a good idea. What is it? I still don’t understand it fully. But it basically amounts to a leveraged bet on the stock market. If you lose, you lose big as many pension funds are finding out. So now the Pennsylvania state employees’ pension fund, for instance, will have to take a multi-billion bath on this exotic investment strategy.

As the Wall Street Journal reports: “The stock-market downturn could force the Pennsylvania state employees’ pension fund to make cash payments of $2.5 billion or more to trading partners on Wall Street.” The fund has only $27 billion in total. At least, it had $27 billion.

Several other funds have reported billion dollar losses on portable alpha strategies. I can only imagine how many more institutional investors are in the same boat. The people running these things and advising these people should all find other work.

The third example is so-called “accumulators,” which is another kind of tactic for placing highly leveraged bet on stocks, currencies or commodities. I don’t want to get into the details. It’s so complicated; it would take me a page to explain it. Just know that, like “portable alpha” if you are wrong, you lose big.

And yet all kinds of wealthy individuals and businesses have gotten wrapped up in these things. Accumulator losses are showing up in some unlikely places. For instance, VeraSun Energy Corp. (VSUNQ: OTC), which makes ethanol, filed for bankruptcy in part because of big losses on accumulators tied to the price of corn. Citi Pacific (CIY: ASX), a Chinese conglomerate, lost $2 billion on accumulator contracts linked to currencies.

Billions and billions of dollars lost on nonsense. There was no reason for anybody to buy these things – especially when they clearly did not understand the risks involved. The losses are so bad in Hong Kong that Any Xie, an independent economist, said recently that “Accumulators are ruining Hong Kong.”

I’ll offer one other example of this kind of recklessness that is both a historical and contemporary study: Goldman Sachs.

I just recently finished perusing Charles Ellis’ new history The Partnership: The Making of Goldman Sachs. I was particularly interested in the early history of Goldman Sachs. I thought I would come away thinking how Goldman Sachs used to be a simpler business. I thought Goldman’s history would show how it took prudent risks with adequate equity backing those risks. My conclusion would then be that the current crop of leaders at Goldman were just reckless and ruined a franchise that had been around since the 1880s.

In fact, that’s not what I learned at all. From Goldman’s earliest days as a commercial paper specialist it operated with minimal capital. All through its history, it has been a business that took big risks and often took huge losses. That Goldman even exists at all today is something of a financial miracle.

In reading this history, I was struck by how the company found itself in the soup again and again and again. In the 1920s, one of the biggest speculative busts was in investment trusts in which a small amount of capital supported a spider’s web of investments in other companies. Guess who had the biggest blow-up of them all?

Goldman was big in this through a subsidiary called Goldman Sachs Trading Corporation, which basically lost everything for its investors. Ellis writes:

“While all the investment trusts suffered, Goldman Sachs Trading Corporation – because it was so large and so highly leveraged…became one of the largest, swiftest, and most complete investment disasters of the twentieth century.”

The loss to Goldman Sachs itself was enormous. It basically wiped out thirty years of profits and eliminated the “fruits of all the labors of a generation.”

Fast forward to 1970 and the biggest bankruptcy in the country at that time. You find Goldman was waist-deep in it. Penn Central at the time of its bankruptcy in 1970 was the eighth largest corporation in the country. Again, Ellis writes: “the loss it [Penn Central] threatened to impose on Goldman Sachs was not only larger than any prior loss, it was larger than Goldman Sachs.”

And so it is today, that the company once again finds itself in the middle of yet another big crisis that threatens its very existence. I don’t know about you, but I have to wonder about all the brains at Goldman Sachs and all the people who say what a great firm it is. Seems to me, for such a bunch of supposed geniuses, they routinely shoot themselves in the foot, time and time again. You don’t find Berkshire Hathaway fighting for its life every decade.

All of these anecdotes scream at me to avoid the complex and the leveraged, which often means a potential for a mega-loss if you’re wrong. The problem is these kinds of bets infect many companies, as I’ve shown, even when they have nothing to do with the core business. Even otherwise seemingly simple enterprises, like making tortillas or producing chicken, have been hurt.

The advice I have is not novel, but bears repeating since so many seem to forget it. Stay away from anything you don’t understand. (All those folks who lost money with Madoff in his $50 billion Ponzi scheme would’ve saved themselves a lot of money just with this single insight.) And avoid excessive leverage. It’s one thing to lose money. It’s another thing to lose it taking on stupid and pointless risks.

Regards,
Chris Mayer

January 8, 2009

Mindless Risk Taking was originally featured on Whiskey and Gunpowder

Eddie Cantor (1892-1964) was a comedian, singer, songwriter and actor. “Banjo Eyes,” as he was sometimes called, was also the author of two little books on the Great Depression. “People used to rob banks,” he writes in Yoo-Hoo Prosperity. “Now we’re lucky when it isn’t vice versa.” Cantor jokes about many troubles in the Great Depression, but one recurring theme is the relative lack of food.

A millionaire is “one who eats three square meals a day.” Things were so bad that “the pigeons are now feeding the people.” They were funny lines…sort of. For many of the people living during those times, Cantor’s jokes were not so far from the truth.

We have it comparatively easy in this, the crisis of 2008. We may have to make do with fewer Swatch watches and Coach handbags. We may have to pass on the latest iPod and make do with last year’s winter coat. These hardships are not important, except for people selling those goods. But the credit crisis is also affecting the world’s ability to produce one thing important to everyone: food.

It’s harder for farmers to get credit for next season’s crop, especially farmers overseas. They need fertilizer, seed, fuel and more. And most farmers need to borrow money to obtain these essential items. No credit; no crops.

Therefore, the global credit squeeze might reduce plantings of key grains, even as world inventories of these grains hover near historic lows. In Russia, for example, cash-starved banks have cut off funding for the industry. The head of the Russian Grain Union says, “Many farmers probably won’t be able to borrow money for the spring sowing.” This is important because Russia is no lightweight in the grain division. It produces 9% of the world’s wheat, for instance. No surprise that the United Nations considers Russia a critical component of the global food supply.

Ironically, Russia just had its best harvest ever. And still, global grain inventories remain low. Bloomberg reports that global inventories of corn, wheat and soybeans are the second lowest they’ve ever been since 1974.

A number of countries already fear what might happen next year. The Washington Post Foreign Service in Shanghai reports that China adopted a number of measures to protect itself from the worsening food crisis: “Among the most extreme measures [China] took was to impose new export taxes to keep critical supplies such as grains and fertilizers from leaving the country.”

These taxes are extremely high, on the order of 150%-185%. China worries that richer countries may outbid its own farmers for supplies and weaken China’s own food supply. One Chinese fertilizer company, which produces 150,000 tons per year, already said that the new taxes mean exporting is no longer profitable. China was the biggest exporter of certain types of fertilizer. No longer. That’s a lot of supply off the market.

Fertilizers are absolutely critical in maintaining (and improving) crop yields. Without them, we’d produce far less per acre. As a result, in parts of Africa where people depend on Chinese fertilizers, the food supply problem is now more acute. China’s export taxes and bans follow those of other grain producers, including the Ukraine, India, Pakistan and Argentina.

Amazingly, despite these various maneuvers around the world to prevent grain exports, the prices for wheat, corn and soybeans are all half of their mid-summer highs. It seems the market believes a global recession will dampen demand. Maybe so, or maybe the market doesn’t know anything. The severe commodity selloff during the last few weeks might be saying a lot more about the desperation of hedge fund managers to raise cash than about the prospect that grain demand will fall – in which case, we could see another surge in prices next year.

Demand for grains is still very strong. In China, each wage-earner devotes about 40 cents of every dollar earned to buying food. In India, that number is a staggering 70 cents out of every dollar earned. In other words, the food budget in these countries is hardly a discretionary item. It will remain constant, or even rise, no matter what the global economy does.

Meanwhile, the people in these countries who have a couple of extra rupees to toss around are upping their consumption of meats, which increases the per capita demand for grains. As PotashCorp chief William Doyle recently pointed out: “The average daily protein intake in China has increased by 40% over a 20-year period, with the greatest percentage of that increase coming from meat consumption.” You can see it in the size of the people themselves: The average 6-year-old Chinese boy is 12 pounds heavier and 2 inches taller than 30 years ago. These people aren’t going back to the ways thing were. This is a long-term story, and these trends should continue.

Yet even if demand growth for grains slows, it’s not likely that those low global grain inventories will improve. Even if grain demand fell to 2% per year, we’d still need record production to keep grain inventories from falling further.

For all these reasons, I think the future is still bright for agriculture and all that it entails. I think the fertilizer companies look cheap again. In my monthly newsletter, Capital & Crisis, my subscribers owned Agrium (NYSE: AGU) for nearly three years, and it more than tripled our money. The stock is now a good one-third below what we bought it for initially.

PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS) are other names I’m looking at hard right now – both have been crushed in this troubled market.

Beyond that, irrigation companies have come way down, even after posting outstanding results. Lindsay (NYSE: LNN) and Valmont (NYSE: VMI) are two irrigation equipment makers, for example, both coming off great quarterly results.

In 1931, Eddie Cantor wrote that the biggest thing in years was bread. “Why, they’re giving it away free! Whenever four men get together at a street corner, it used to be a merger,” he writes. “Now it’s a bread line!” It’s funny now. Next year, it might not be, at least to some.

Regards,
Chris Mayer

December 03, 2008

Crash in Food Supply was originally featured on Whiskey and Gunpowder

Every crisis, though, brings opportunity. In this one, investors will go back to investing in simpler, more durable things (at least until forgetfulness kicks in). For instance, investing in a company that supplies grains to hungry people looks like a better bet than investing in one that sells mortgages to people who can’t afford them. The focus will shift to things we need, rather than things we want.

I have two ideas for investing in the post-financial world in this letter, including a new idea — a family-owned conglomerate that combines operations in pork, grains, shipping and more. It’s a stock you can sock away for a long time. And if the post-financial world develops as I think it will, you’ll be glad you parked some money in this sector…

I was spending a few days in Paris when the U.S. markets put on a show that had the feel of a movie climax. Uncle Sam bailed out AIG. Merrill Lynch sold out to Bank of America. The U.S. government hastily arranged a $700 billion bailout. Markets rose and fell hundreds of points per day. Gold and oil enjoyed their biggest one-day rises ever. It was a wild stretch.

The French have a chance to gloat a bit. Even though the crisis in America, the world’s biggest economy, helps no one, the French may have a better shot than most at coming through it with only flesh wounds. The housing market stinks in France, too. Housing sales in France are off 20% in the last 12 months. But the French market is not nearly as leveraged as the U.S. market was.

Financial innovation seems to occur slowly here. Mortgages in France are typically for terms of only 15 years. The French have also not embraced creativity in this field, as most mortgages bear fixed rates of interest. There is no subprime market. And French consumers did not borrow much against the rising prices of their homes. (The savings rate here is 13% of income, versus zero in America.)

The U.S. economy followed a very different path. Sometime over the past few decades, we abandoned the old-world notion of making things. We turned to making shuffling paper our stock in trade. Precisely when and why this happened will be something for historians to debate. But sometime in the 1990s, the percentage of corporate profits from finance passed that from manufacturing.

It was the first time that had happened, and the gap has only grown wider since. Before the great credit crisis hit, profits from financial firms made up nearly half of corporate profits. Only 10% came from the manufacturing sector. As recently as the mid-1960s, it was the other way around.

The French go on and on about their cheeses, wines and breads. For us, mortgages became our national product. Mortgages, before the crisis hit, made up 60% of total bank loans and the financial sector grew to become our biggest sector — bigger than health care, retail or manufacturing.

Replay the 1970s — Only Bigger…

To a smaller degree, we had a similar crisis in the 1970s, Kevin Phillips tells us in his new book, Bad Money. Mortgage debt doubled from 1960-70. The Dow crashed, losing 36% of its value from 1969-70. Hedge funds blew up. The top 28 funds lost 70% of their assets, and about 100 brokerage and financial firms disappeared — by either acquisition or outright failure. Seems a lot like the outlines of the present day, does it not? The 1970s also had two major oil price spikes. The first in 1973-74 and the second in 1979-80. We’ve already had one oil spike now, and a second one is in the cards.

The neglect of making things is perhaps most evident in the oil business. Phillips says the U.S. has a “dated, ghost-of-glories past petroleum infrastructure.” He writes that the major oil companies “are wealthy, but aging behemoths, hard-pressed to maintain production levels, despite large exploration outlays, and no longer enjoying access to overseas oil fields they once commanded.”

Exxon Mobil, once the largest oil company in the world, now ranks 25th by booked oil reserves. The top 10 are all state-owned national oil companies (NOCs). The top 13 NOCs own four-fifths of the world’s known oil reserves. They don’t share them cheaply.

A look at where we get our oil is not encouraging, as the chart below shows. Most of these sources of supply are not particularly reliable. As Phillips opines (the table below comes from his book): “Of the eight principal 2007 suppliers of petroleum to the United States as of August, only one, Canada, could be called secure and reliable.” Mexico seems secure, but exports have been falling since 2004, as Mexican production has fallen. It could become an insignificant source of oil by 2012.

And we are not alone in competing for these oil reserves. China became a net oil exporter in 1993, and its appetite grows every year. It is now the world’s second largest consumer of oil, behind only the U.S. China actually imports more oil from Saudi Arabia than the U.S. This partnership is not surprising, given the dynamics of the New Silk Road.

The “New Silk Road” is a term I use for the boom in trade between countries from the Middle East to China. In matters of energy, you see a lot deals inked on the New Silk Road. Saudi Arabia and China get together regularly like newfound pals. Sinopec, a Chinese oil company, recently got the OK to explore the Saudis’ Empty Quarter for oil and gas. Saudi Aramco, the big oil company, put $750 million toward a huge plant in China.

Just as interesting to me is what I like to call the “New Burma Road” — after the road of World War II fame that linked China and India via Burma. The New Burma Road identifies the booming trade between India and China. As Phillips writes, “China has already made a six-lane highway out of its portion of the road from Chinese Kunming to India’s state of Assam… The demographics of a Sino-Indian entente would make it especially momentous.” Yeah, I’d say so, given the strengthened ties between more than two billion people.

As you know, there is an awful lot going on in the world today, and it’s all far more complex than I can get into here. But this is where we are, in brief: The U.S. economy faces a crisis in its biggest sector — finance. The neglect of making things is finally taking its toll, a fact most apparent in the oil and gas world, but also apparent in infrastructure across the spectrum. And the world is less U.S.-centric than it has been in a long time. We see this, too, in the oil and gas sector and in the flurry of deal making along the New Silk Road (and its “momentous” segment, the New Burma Road.)

The implication of this post-finance U.S. economy is a theme we’ll explore more in this letter. As an early conclusion, though, I believe the spread between finance and manufacturing has reached millennial extremes, like a rubber band at its limits. Now begins the snap back.

Regards,
Chris Mayer
October 21, 2008

Useful Activity Will Survive the Meltdown was originally featured on Whiskey and Gunpowder

“If you crossed the street blindfolded, you’d probably be OK. But the consequences of being wrong are so great, it’s a bad idea.”

— Bill Bonner, Founder of Agora

The “financialization” of the American economy is an era coming to a close. It’s back to the basics of wealth creation, to the basics of owning and making useful things. Because of their intrinsic usefulness, these investments hold their value over time. In the current turmoil, the market is tossing out just about everything. So you’re getting good prices for picking up these basics. One of these basics is the ability to produce food.

I was recently in the Chateau de Courtomer, one of the last chateaux built in Normandy, France, shortly before the French Revolution. A large, old painting of the Marquis de Courtomer still hangs in the stairwell. Bill Bonner, my publisher and the owner of the chateau, told me the man lost his head — literally — during the revolution. The chateau was also a regional headquarters for German operations in Normandy during World War II.

It’s a great old building, made of sturdy brick and stone. Imagine all that it’s seen over the centuries: wars, market crashes, all kinds of disaster. Yet it still stands. It’s retained its usefulness, even after all these years. That durability is a good thing — an enviable thing — and not so common among most of our material possessions.

Durable old investment ideas are on my mind today. With the credit crisis gathering power like a hurricane over the warm waters of the Gulf of Mexico and laying waste to the stock market in the process, it seems natural to focus even more on ideas with impregnable staying power.

One night at dinner, we had an interesting discussion about what sort of assets we’d want to own during times of crisis. We talked about gold — which had very recently enjoyed its best day ever, when the price rose by $50 per ounce. We talked about silver. Dan Prescher, the editor of International Living, though, had a different idea.

“I’d own a cow,” he said. “Think about it. What would you rather own if things got really bad? Gold coins or a cow?”

I think he was onto something. A cow is, of course, a useful animal to have around. Maybe some chickens, too, and some farmland with ample water and a good stand of fruit trees. These things have always had value to mankind. We need to eat and drink. During times of crisis, people may make do with an old sweater and forgo buying a new one. They may patch up that old couch, skip the movies and pass on the latest iPod. But they always eat and drink.

I’ve been thinking more about the global food chain lately. In the last issue, I wrote to you about what I called the “topsoil crisis.” Fertile land is becoming an extremely valuable asset. And what I think will happen is that the whole food chain will become more valuable with it. It’s sort of like the oil story.

As the price of oil rose, oil reserves became much more valuable. But so, too, did the whole energy infrastructure — pipelines, refineries, companies and people who can build and repair oil rigs and such. I think the same thing is happening — or will happen — with farmland and the entire food network that feeds this hungry planet. The ability to supply hogs and chickens and grains will become much more valuable.

I’m working more on these ideas, and I’ll have some new research to share with you in your next issue. This market turmoil could create some truly awesome opportunities to get in pretty early on these emerging trends.

Also, the market turmoil has created some great opportunities within our existing portfolio. There are several names I have at “hold” that I am looking to upgrade to “buy.” Otherwise smart investors who may balk at the idea may want to consider some more advice from Templeton.

More Good Advice from Templeton

On Thursday, I shared with you some quotes from John Templeton taken from the latest issue of Outstanding Investor Digest (which I recommend).

Here are a couple more ideas worth rolling around in your head as you think about investing:

The stock selection process is complex. Remember that unlike other professionals, a prudent and wise investor cannot afford to do what other investors do. For example, if 10 doctors tell you an appropriate prescription, then it’s wise to accept that consensus. Likewise, if 10 engineers agree on the design of a bridge, then that’s surely the right way to build it. But if 10 investment analysts tell you to buy a particular stock — or gold, deutsche marks, denominated bonds or whatever — it is probably the wrong thing to do.

Investing inhabits a peculiar world. You have to walk with the minority as an investor. You have to have the fortitude to stand against the crowd. As Templeton says below, the only way to pick up bargains is to buy what people are selling:

Buy those things that are depressed. A security is depressed in price only when people are selling. There is no other reason why the price should drop to an undervalued level except the pressure of selling. So in securities markets, you have to be prepared to do the opposite of what most investors are doing if you are going to get bargains and make superior profits in the long run.

These are certainly trying times. The recent market crash will test the nerve and resolve of every investor. But there is not much to do other than wait it out. And for those who have the stomach for it — and the means — it’s also a time to pick up some great bargains.

Sincerely,
Chris Mayer
October 13, 2008

Useful Stuff, Not Inflated Debt was originally featured on Whiskey and Gunpowder