-- Posted Friday, 5 May 2006 | Digg This Article

London, England

Friday, May 05, 2006

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*** Where the money is...who can resist the energy revenue?...the Exodus
of cash continues...

*** Iran still refuses to back down...an interesting summer ahead...can
teach an old "new conservative" new tricks...

*** There are others further down the road to ruin than
America...homeowners cashing out...marry me, marry my debt...and more!

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[CORRECTION: In yesterday's issue, we ran an essay by John Williams,
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¿Y tu, Evo?

If Willy Sutton were alive today, he'd be eyeing the oil industry. Sutton,
you'll remember, was once asked why he robbed banks. "'Cause that's where
the money is," he replied.

According to our sources, Evo Morales may be doing a Willy Sutton number.
As candidate for President, he promised the Bolivian peasants a big pay
increase. Then, when he got into office, the mean people at the national
treasury had a little talk with him. "Where was the money going to come
from?" they wanted to know.
 
Evo looked around. He was losing popularity fast. What did the country
have that was worth anything? Coca leaves. Yes, but coca growing is a
business best done in the dark of night. If he were to nationalize it,
he'd have a revolt from his old friends and supporters - that was the
business they were in. And, cocaine is a high-margin business only so long
as it remains illegal. That's just another way the world degenerates, dear
reader. The cops and robbers collude to protect the industry.
 
No, Evo had to find something else. He must have read a paper. Or, maybe
he called Hugo Chavez in Venezuela to ask for advice. Maybe he talked to
America's Democrats, who are proposing a "windfall tax" on the oil
industry...or the Republicans, who cravenly call for stiff penalties on
oil companies convicted of "gouging," whatever that is. One way or
another, he's found where the money is: energy.

>From Moscow to Mecca to Maracaibo...oil and gas revenues are irresistible,
and they are changing the shape of the world's wealth and its politics. We
have been writing about the Exodus of wealth and power from the West to
the East. Incomes are soaring in India and China. Savings are piling up,
and the economic power of Asia will soon surpass that of the United
States. But there's another side to the Exodus. While the U.S. runs a $700
billion trade deficit, an almost-equivalent surplus is being enjoyed by
the world's energy exporters: Russia, Venezuela, Saudi Arabia, Iran.

And thus, the great American empire - direct heir to the British, lineal
descendant of all the great European empires from Athens to Paris - now
finds that its major creditors worship other gods, speak incomprehensible
languages, dance to tunes they can't snap their fingers to and generally
wouldn't give a damn if all Western Civilization collapsed in front of
them in a heap tomorrow.

We see the evidence of the big Exodus right here in London. Despite the
huge salaries paid in the City, London's answer to Wall Street, a large
part of the spending here comes from Russians, Arabs, and other
foreigners. By one estimate, the oil exporters together will earn about
twice as much free cash this year as the Chinese.

What a change. Even a couple of years ago, the only time you heard Russian
speakers in London was when the waiters spoke to each other. Now, it is
the customers who are speaking Russian, and the people shopping for luxury
apartments or buying Maseratis and Lamborghinis on Brompton Road.

Back in 1998, the Russians were so broke they reneged on a $5 billion loan
from the IMF. The crisis that followed sank the world's most prestigious
hedge fund, Long Term Capital Management, and threatened to bring down the
whole international financial system with it. Now, Russia earns about $5
billion every week, and just for the month of April, its foreign currency
reserves rose $15 billion.

That is the money that is helping - for the moment - to hold up the dollar
and the upper end of property markets all over the world.

And so, the Exodus of cash continues...to the product exporters of
Asia...and the energy exporters all over the planet. What can Pharaoh do
about it? He owes money all over town. His enemies hold a mortgage on his
pyramids. He may bluster and threaten, but he depends on them for his
daily bread...and to pay his army.

And now, almost in his back yard, Evo Morales thumbs his nose at the U.S.
Empire. He says he doesn't care who owns the companies that pump oil and
gas from Bolivian ground; from now on, he's in charge.

Will ordinary Bolivians be any better off as a result? Of course not, but
soon, we predict, Evo's cronies will be buying condos in Miami.

More news from The Rude Awakening...

--------------

Eric Fry, reporting from Wall Street:

"Although we continue to anticipate a harrowing, short-term sell-off very
soon in copper, crude oil and a few other commodities, we also continue to
anticipate a harrowing long-term sell-off in the U.S. dollar."

For the rest of this story, and for more market insights, see today's
issue of The Rude Awakening:

Dollars Make Pennies
http://www.the-rude-awakening.com/RAissues/2006/march/RA050506.html

--------------

Back to Bill Bonner with more views:

*** Not surprisingly, Iran is still refusing to back down on their uranium
enrichment program. They are still sticking with their story that there is
no need to worry about their nuclear intentions, saying the United States
is cooking up "a crisis where a crisis is not needed."

The price of crude rebounded from three-week lows on the continued
uncooperative actions from Tehran. Closer to home, hurricane worries have
added to the price increase. Our own commodities guru, Kevin Kerr tells
MarketWatch:

"We are seeing frantic warming in the region, more so than normal this
early," said trader Kevin Kerr, who edits Global Resources Trader, a
newsletter published by MarketWatch, the publisher of this report.

"This does not bode well for the folks in the Gulf Coast. We could see a
hurricane much earlier then we ever have before if these patterns
continue."

This doesn't bode well for the rest of the country either. The price of
gasoline rose with the abnormal warm weather - and hurricane season isn't
anywhere near full-effect. It will be interesting summer, to say the
least.

[Ed. Note: The oil and gas shortages we've seen lately are nothing
compared to what's on the way. If the United States dodges crucial energy
choices, it will be too late to avoid $100 oil, and paying $4 for gas will
seem like a dream come true. Outstanding Investments' Justice Litle has
the full report on the so-called "reserves" the U.S. is counting on to
keep up our oil addiction. You can read it here:

Imaginary Oil
http://www1.youreletters.com/t/360628/4459110/787692/0/

For even more information on the future of oil, listen Kevin's interview
with Howe Street radio:
www.dailyreckoning.com/audiofiles/kevinkerr04052006.mp3

*** "Cheney rebukes Russians," the front page of today's International
Herald Tribune tells us. We had to a laugh. What's his beef with the
Rusians? Get this. They're using oil and gas as "tools of intimidation and
blackmail." In other words, they're using their resources to get what they
want, just as America does with its trade policies and foreign aid. And
then, the man who led the invasion of the sovereign nation of Iraq adds:
"No one can justify actions that undermine the territorial integrity of a
neighbor."

What is funny about this is not the hypocrisy. We appreciate a certain
type of hypocrisy which if it does not demonstrate virtue, at least shows
the proper respect for it. No, what is funny is that this old "new
conservative" doesn't seem to realize that the game itself has changed.
The Russians are no longer the Evil Empire. The only empire left in town
is our own, and though its real nature is yet to be determined, it is much
in doubt.

The vice president can lecture the Chinese about the need to raise their
currency, and harangue the Russians about the need to reform their energy
policies, but what can he do? Threaten to stop borrowing from them?

*** There are those much further on the road to ruin than America. Keep
your eye on Zimbabwe for instruction, but also for amusement. You want to
see what kind of trouble a country can get itself into - Bolivia, please
take note - when it is run by morons for the benefit of jackasses? You
think you've got problems. Just try to buy a bar of soap in Harare. The
papers tell us that ordinary supplies have disappeared from the shops. You
have to go out and find a vendor on the street...who might have two bars
of soap and one loaf of day-old bread as his entire inventory. But
whatever you find, buy it. The Zimbabwe dollar is losing value even faster
than the U.S. paper - a lot faster. In fact, the rate of domestic
inflation is expected to top 1,000%, when it is computed this month. The
central bank is offering 91-day notes paying 525%.

There is no winter without a spring. We're beginning to think we see some
buds in Zimbabwe. This might be a good time to buy there - not
soap...farms. Yes, we know the government has been confiscating them. And
yes, we know the economy is an absolute shambles, but it is beginning to
appear as though Zimbabwe has gone about as far down this road as it can.
There are only 300 white farmers left in the country, and many of them are
packing their bags. The country is proposing to keep them and draw back
some of those who left, offering 99 year leases on the property it stole
from them.

*** Back in the United States, real estate is on shaky ground. Mortgage
defaults are rising in the San Francisco bay area. In San Diego, the paper
tells us prices are "flattening." And in Las Vegas, new developments are
being cancelled faster than they are starting up. "Homeowners are cashing
out," says a report on CBS Marketwatch.

"If you wanted to sell that place this is the time to do it," said a
cousin. He was referring to our old farm in Maryland.

"Prices haven't gone down, but they're not going up anymore. At least, not
like they were. And, a lot of people are hoping to get rid of property
now...before it starts to go down."

Stay tuned...

*** Debt, debt, debt. America's young people are rattling around in chains
before they ever get a chance to commit a crime. The average student
leaves a private university with $22,581 in debt, up from $15,000 in 1990.
Put aside whether that investment really pays off. We don't believe it
does, but imagine two of these poor young people getting together. They
start out in their family life with nearly $50,000 in debt - as much as a
mortgage, without a house! At 6% interest, making minimum payments, it
will take them until their golden wedding anniversary to pay it off.

Poor things.

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The Daily Reckoning PRESENTS: Everything eventually degenerates and
decays...people, eras - and even empires. Bill Bonner wonders if it is
worth fighting against the inevitable, or embrace it. Read on...

NOBLE ROT
By Bill Bonner

An aged man is but a paltry thing,
A tattered coat upon a stick, unless
Soul clap its hands and sing, and louder sing
For every tatter in its mortal dress
 - W. B. Yeats, "Sailing to Byzantium"

The altoplano of Northwest Argentina is dry. The air is thin. Even though
it is not far from the equator, it is not very hot, even in the middle of
summer. We were there in early autumn.
 
Francisco's grandfather had planted rows of alamo trees all around the
house and far out into the open prairie. This time of year, the trees wear
their dresses of bright red and gold. And then, when the wind blows, the
leaves go dancing in the meadow.

Staring out the window, we can't remember seeing anything quite as
beautiful...the rows of yellow trees, stone walls surrounding a large
green pasture, and beyond the stone wall, a broad expanse of open range
with rugged mountains in the distance, their summits sparkling with snow.

"I don't like it when you say things are always decaying and degenerating;
it makes me depressed."

Elizabeth seemed weary as she spoke, like someone who had just been given
five to 10 by a federal court, with nowhere else to appeal. "I just don't
like the idea that everything is always getting worse. Always degrading.
Always degenerating. I don't think it is true."

Elizabeth believes in the power of reason...of progress...of good
intentions and hard work. She believes that time takes us forward,
generally towards a better world. She imagines an upward slope to human
affairs, always marching ahead into the brighter light of an improved day.
Where she sees rot and corruption, she is annoyed and aims to treat it
like mildew in a closet.

We, on the other hand, give in to rot like a middle-aged man gives in to
an affair with his secretary; it might lead to trouble, but he hopes it
might be worth it.

Out the bedroom window was evidence - the bright leaves. They were brought
to us by corruption and death. Decay, degeneration, death - and then,
renaissance. Unstoppable. Ineluctable. Irremediable. It seemed like
progress to us...even if it weren't always uphill.

Elizabeth reads the papers and chaffs against it. Problems have solutions,
she believes. Mistakes are made by humans; they can be corrected by
humans. She sees the empire in decline and is tempted to do something
about it.

She is a better American than we are.

Readers may wonder what any of this has to do with money. Of course, the
answer is nothing at all - or everything. For the same laws that condemn
the body and rule the soul also apply to all things human - including
investment markets and the civilizations that produce them.

It was human beings who created the American Republic, and human beings,
too, who nursed it into a great empire with a reserve currency and a $50
trillion public debt. Now, the debt grows more every 18 months than in the
first 204 years of the nation's existence. Competitors in Asia take away
its business; energy exporters take away its cash. All while the United
States squanders its borrowed money on domestic bread and circuses that
can do it no real good, and foreign wars against countries that can do it
no real harm.

The empire is surely on a downward slope now. But so what? Empires, like
beautiful women, fine wines, or graceful buildings are never more alluring
than when there is a hint of decay about them. Age gives them grace and
mystery...before destroying them completely. And what man is any good
until he has been tempered by age, and hammered at the forge of mortality?
A young man walks upward. He climbs the mountain every day, but it is the
downhill walk that puts him to the test. Like an army in retreat, he tries
to hold himself together and meet his fate without making a fool of
himself.

Yet, we cannot argue with Elizabeth's desire to make things better; in
fact, we admire her for it. The process of corruption is no more natural
or inevitable than her readiness to fight it. Besides, there is nothing
more captivating than a lost cause, and no man so appealing as the one who
fights for it, like Rhett Butler who went off to join the Confederate army
after he knew the war was lost.

We were put into this philosophical mood by pain. Riding along on
horseback on our estate, we wrenched our back and spent nearly three days
in bed. Accidents with horses seem to promote a certain kind of
reflection. Indeed, the career of one of the greatest thinkers about the
corruption of life began and ended with horses. In 1867, when Friedrich
Nietzsche began military service, he attempted to leap-mount into the
saddle of his horse, only to flounder with a chest wound. That sent him
back to the University of Leipzig, where he wrote one of his great works,
"Human, all too human."

Then, in 1889, in the piazza Carlo Alberto in Turin, he saw a horseman
lying on the whip and was moved to throw his arms around the horse's neck.
Legend has it that the sensation of pity drove him mad. More likely it was
third stage syphilis, a disease of irreversible degeneration in those
days. Either way, his career was over.

Our injury on horseback gave us time to think, but nothing newsworthy to
think about. We had no television, no radio, no newspapers, no books, no
telephone, no Internet. All we could do was stare out the window. And from
the position of our bed, all we could see was the bright autumn colors of
the dancing leaves, and up the hill behind the house, a large, white
cross.

"There's nothing to be depressed about," we told Elizabeth. "If it weren't
for the decay, we wouldn't have this view."

We wouldn't have the view, and the leaves would never turn colors, curl
up, and die. No one would have gone to the trouble to put up a white cross
at the top of a barren hill an hour's drive from the nearest one-horse
town. Without death, there would be no redemption, no hope of heaven, no
fear of hell, and no chance of everlasting life. Without death, life
everlasting would have no meaning; all movement would cease...because all
the earth would be frozen into a meaningless past, and an equally
meaningless future.

"You know, the main difference between Indian culture and Western," said
Michel over lunch, "is the idea of time. In our culture, it is linear. We
see it going forward...in a kind of eternal march of history. But in India
it is circular. The Hindi word for tomorrow, kal, is the same as the word
for yesterday, because yesterday is in the future, too. Kal (yesterday) -
Aaj (today) - Kal (tomorrow). "

Yesterday, today, tomorrow, and yesterday, again. Eram. Sum. Ero. Eram.
Ero.

Civilizations rise, and then decline - and then rise again. Markets begin,
rise, soar, then collapse, and begin rising again. History records the
whole thing as a pack of lies and misunderstandings involving hairy people
with tails, doing foolish things for absurd reasons. But, there are
moments of glory, too, when men occasionally stand on two feet.

Down in Cafayate, we visited the vineyards. There, too, the process of
corruption brings the grapes to a majestic and honorable conclusion. As
they mature, they store up sugar, an oenologist explained to us. They also
collect what they call a "noble rot" - a type of decay that begins the
process of fermentation and turns grape juice into fine wine.
Noble rot is a specific fungus - Botrytis cinerea - found on certain
grapes and famous at the Chateau Yquem, which produces some of the finest
sauternes in the world.

Botrytis cinerea is a grayish mold that looks like ash on the grapes. When
the wine growers see the fungus forming, they carefully watch the grapes
and pick them at just the moment when there is enough rot to produce a
fine wine, but not enough to destroy it.

The fungus is, of course, a parasite - like a leech on a dog or a lobbyist
in Congress. But the rot it engenders does not make the grape go bad;
instead, it concentrates the sweetness.

The world and everything in it seems set up for disappointment. The green
buds come out in spring, unaware that they are all doomed. But when the
crisp weather comes, they do not simply droop and die. Instead, the stress
of approaching death brings out the best in them. Like Sidney Carton, they
seem to rise in grace and dignity as they mount the scaffold. They are at
their moment of glory when the hangman slips the noose around their necks.
And as the ship's officer remarked when the Titanic took on water, the
orchestra never sounded better.

Bill Bonner
The Daily Reckoning

Editor's Note: Bill Bonner is the founder and editor of The Daily
Reckoning. He is also the author, with Addison Wiggin, of The Wall Street
Journal best seller Financial Reckoning Day: Surviving the Soft Depression
of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin's follow-up book, Empire of Debt: The Rise of an Epic
Financial Crisis, they wield their sardonic brand of humor to expose the
nation for what it really is - an empire built on delusions. Daily
Reckoning readers can buy their copy of Empire of Debt at a discount -
just click on the link below:

"Now Perhaps Someone Will Listen!"
http://dailyreckoning.com/EmpireDebt.html
-- Posted Friday, 5 May 2006 | Digg This Article

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