Sneaking in Financial Reform, Bad News for China, An Expat Haven and More!

by Addison Wiggin & Ian Mathias

  • Modern misdirection: With eyes on health care, Senate sneaks in massive fiscal reform
  • Marc Faber highlights his favorite stocks… and when he’s planning on buying ’em
  • China suffers barrage of bad news: Google, Rio Tinto, The Economist add to recent controversy
  • Plus Chris Mayer checks in from an expat haven… high society living at third-world prices


  Snipers call it “sound masking.” When a lone gunman is waiting to take his one big shot, it’s wise to wait for a sound that might help mask the rifle’s boom… like a thunderclap, explosion or artillery blast. If he’s lucky, no one will notice.

Sen. Chris Dodd, ready to fire

With American attention focused squarely on the health care reform bill, which President Obama signed today, few will notice the massive financial reform also hurdling its way through the halls of Congress. Sen. Dodd shot the 1,336-page bill straight through the Senate Banking Committee last night, with a remarkably small amount of Republican opposition. They must be more concerned with some other piece of legislation.

Look for the Dodd reform bill to stay on the fast track.

  Speaking of financial reform, a new chapter in the debate on executive compensation: Of the 104 senior execs whose pay was cut by “Pay Czar” Ken Feinberg, 88 are still with the same companies, in the same positions. For all the pissing and moaning from these organizations — AIG, GM, GMAC, Chrysler, Citi and Bank of America — executive performance to date shows that they do not need mega-salaries to retain high-level personnel.

Of course, these convenient data come straight from Feinberg’s office, which is set to approve 2010 pay packages today. But if anything, they highlight the backbone of these bailed-out execs… all bark, no bite.

  The stock market seems unfazed by health and financial reform. The S&P drifted up 0.5%, ironically led by pharma companies like Pfizer and Bristol-Myers Squibb. Despite the new fees and regulations this sector will soon suffer, those two companies outpaced the S&P by a factor of three. 

“I believe that,” Dr. Marc Faber wrote in his latest Gloom Boom & Doom Report, “regardless of whether or not the S&P will exceed its Jan. 19, 2010, high at 1,150 within the next three months, a more meaningful correction will still occur in 2010 and provide a better buying opportunity. An exception to this may be Japanese banks such as Mitsubishi UFJ, Mizuho Financial Group, etc., which are, as I have pointed out before, extremely depressed.

“But if I were held at gunpoint and forced to buy equities (and many institutions need to do this), I would right now invest in energy and energy-related stocks such as Exxon Mobil, Chevron, Chesapeake Energy, Schlumberger and Halliburton. Should the global economy surprise temporarily on the upside, demand for energy would likely strengthen and lift oil prices.

“In addition, I maintain that for at least the next few months, the S&P 500 is likely to outperform emerging stock markets. U.S. large market capitalization stocks are not particularly expensive, and the U.S. dollar is likely to remain stable or even to appreciate further over the next [two] months.”

  One more testament to the hugeness of health care reform. The Drudge Report recorded the second highest site traffic in its 15 year history on Monday — over 36 million hits.

  Two noteworthy public relations flubs from China today:

First, after a long battle, Google has decided to shut down its Chinese Internet search operations. The company couldn’t stomach Chinese censorship policies, and even suggested that the Chinese government had a role in some hacker attacks against the company. Not only is Google choosing to turn its back on the world’s biggest (and fastest-growing) Internet population, but it has decided to reroute Chinese searches to Google servers in Hong Kong. Heh, bet that’s going over really well with both governments.

Second, some Rio Tinto executives — on trial in China for corporate espionage — threw the Chinese a curveball yesterday. The men pleaded guilty and also testified to receiving bribes from numerous officials in the Chinese steel industry — much of which is state owned.

  The latest rendition of The Big Mac index is yet another bad headline for China. When the Treasury Department begins officially mulling China’s currency manipulation next month, we imagine this chart will be making its way around Washington.

We’re in the process of assembling a specific strategy for you, should the battles over yuan appreciation become a monetary war… you can receive it free when you accept this “beta offer” — three months of our new Apogee Advisory. Invitation and details here.

  Further east, “Abu Dhabi is building the world’s first carbon-neutral, zero-waste metropolis,” reports Frank Holmes. “The eco-friendly city of Masdar is scheduled to be completed in 2016. When finished, the city will have a working capacity of 110,000 people — 50,000 residents and 60,000 commuters. The idea is to create an incubator for renewable energy and sustainable technology — a ‘Silicon Valley for clean, green and alternative energy.’

A rendition of Masdar… could a “green” city look less natural?

“There will be no cars, buses or other transportation reliant on fossil fuels. Energy to power the 6-square-kilometer city will come from a mixture of solar panels, wind turbines and the largest hydrogen power station in the world. Altogether, these will amount to about 130 megawatts of power, about 20% less than a conventional city of the same size, according to a report in ENI’s Oil magazine.

“Abu Dhabi’s government has already contributed $22 billion to the project, and it hopes to attract investment from foreign governments and multinational firms as well…

“Building a fossil fuel-free city in Abu Dhabi, the world’s fifth largest oil and gas producer, may seem counterintuitive, but it makes a lot of sense. Masdar is a key part of the emirate’s long-term strategy to diversify its economy — that’s the same path Dubai started down several decades ago when it became clear that its oil wasn’t going to last forever.”

  Commodities of every variety have had a tough week, thanks to a rising dollar. Oil is two bucks off its one-year high, set last week, and is now at $81 a barrel. Gold is lurking near a three-week low at $1,100.

  One lone bit of data today, and it’s a doozy: Existing home sales fell in February for the third month in a row, and to the lowest levels in eight months. Sales are up 7% from a year ago, but with the homebuyer tax credit set to expire soon (again), the market is swooning (heh, again).

  “Greetings from Leon, Nicaragua,” Chris Mayer wrote his Special Situations subscribers this morning, “which is about an hour drive northwest of Managua. Leon is the second largest city in the country and was the old capital for more than 200 years, before Managua became the capital, in 1851. I’m staying with a friend of mine from college and his family, who moved down here five years ago.

“He lives very well here for not much money. This house in which I am staying is a comfortable 4,000 square feet with everything you could want in a house — a big kitchen with granite countertops, beautiful ceramic tiles throughout, an open courtyard, balconies overflowing with pink flowers and vines, a red tile roof — all done in the Spanish-influenced style you find throughout South and Central America. It’s bright and airy and not at all humid. So even though it is 90 degrees here, we have the windows open and feel fine.

“It would cost you about $200,000 or so for this house. If you got the lot and built it yourself, it might cost you $150,000. This is a nice location, too, in a quiet neighborhood. I’m within walking distance of central Leon with its central park and the largest cathedral in Central America.

“You could live extravagantly here for $2,000 a month — enough to have hired help like a maid, which would cost you about $100 a month. Last night, we went to dinner. We waked down the little narrow streets of Leon (the city was founded by Spanish conquistador Francisco Hernandez de Cordoba in the 1500s). We had nacatamales — meat, peppers, rice and more mixed in with cornmeal and cooked in banana leaves — for $1.50 each. They were delicious. These were big tamales, a solid meal all by themselves. And my friend adds that these were the high-end version. There are cheaper versions in the city.

“Labor is very cheap here. Food is cheap. Some things are not so cheap. I was shocked to find that gasoline is $4 a gallon. For the wages people earn here, that is a lot of money. Brand-name U.S. products are expensive here, too. If you want to buy a pair of jeans, it will cost at least 30% more than in the U.S.

“Still, the overall cost of living here is very low. And there is a lot to like about Nicaragua besides that. There is plenty of fresh fruit and great beaches and wonderful cultural experiences — all the things you’d want to enjoy as a tourist or expat.”

Chris and Addison are both in Central America all week to check in on some business ventures in Nicaragua and to set up a “chill weekend” for a few Reserve members at Rancho Santana. “If there’s economic stress in the world, you wouldn’t know it by examining the crowd here at the Miami International Airport,” Addison iPhoned us this morning, en route to Rancho Santana. “We arrived at 9:15 a.m…. the bars on the concourse are already teeming with spring breakers. Most gates have little seating, but plenty of families lounging about on the floor.”

Send enough Agora readers and writers to a faraway land and there’s bound to be some stories worth telling… stay tuned for the highlights.

  “Thank you for giving Reserve members the benefit of your new Apogee newsletter,” a reader writes. “It’s a nice benny.


“Also, and I can never repeat this enough: If we get ourselves out of Iraq and Afghanistan, we could likely reduce our deficit pretty quickly! Harp on that, if you would, please.”

The 5: Consider it harped. Don’t forget, you don’t have to be a Reserve member to preview our newest publication, Apogee Advisory. Details here.

  “As luck would have it,” the last reader writes, “I am scheduled to travel to Baltimore for my first time in late April. I can’t wait to go by and meet my new best bartender, Trish, while up there. Can’t remember that I ever helped elect a best bartender before.”

The 5: That’s the spirit.


Ian Mathias

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P.P.S. If you’re interested in small-cap investing, don’t forget about our upcoming free online event with Bulletin Board Elite editor Greg Guenthner. He’ll be answering your most-pressing investment queries… which you can pose, here.



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