The Cloud That Rains Money

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The Daily Reckoning | Tuesday, February 28, 2012 The return of that “uneasy feeling” from just a few years ago... A head in the “cloud”; a leg up for your portfolio... Plus, Chris Mayer with a look at the next major frontier market... Surprise! It’s in Asia... --------------------------------------------------------------- World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you c   Running Up the Tab When People Come to Believe that Deficits DO Matter   Joel Bowman Reporting from Auckland, New Zealand... Here’s a headline for you, Fellow Reckoner: “Blood and spittle on pub floor, to little avail” That was on the front page of the Sydney Morning Herald yesterday. No joke. Yep, we’re back on Terra Australis. At least we were for a couple of hours. Then we hopped the Tasman for the Land of Birds and/or Long White Clouds, depending who you ask. We’ve barely slept a wink since we left on Monday. More on all that when our mind (stuck in a humid Tuesday afternoon reverie back in Argentina) catches up with our body (now floating around somewhere on a rainy Wednesday morning in Auckland). For the moment, let’s just stick to what we know. And what we all know, as anyone worth asking should well know, is that we know nothing at all. But still we guess. Still we reckon... Stocks continue moving steadily higher. Back in the US, the Dow crept past the 13,000 mark this week...a threshold beyond which it hasn’t been seen since May of...gulp...2008. We all remember what happened next, don’t we? By October of that year, despite the rosy predictions of the world’s over-degreed, jowl-flapping experts, markets worldwide were in free fall. Wall Street was a mess and getting messier. Bankers weren’t yet jumping from the windows...but you got the feeling they were beginning to eye up the best spots on the ledge. The mainstream media, as per usual, was frantically trying to figure out what the Hell was going on. “News” just isn’t the correct term for what they peddle. Everything they write about has already happened. “Olds” would be better. Meanwhile, John Q. Citizen was left standing agape. He had, perhaps, begun to sense that something wasn’t quite right in the months and years leading up to the collapse. The house he bought for $250K at the turn of the century had suddenly turned him into a millionaire. Or close. He took the kids on a holiday to Europe and bought a new 4WD. He didn’t worry about the price of gas or the cost of milk anymore. But there was always a suspicious feeling at the back of his mind. He still didn’t feel well off. The rich — the real rich — were still way ahead of him, buying things he couldn’t afford. And all the middle class people on his street, those he had hoped to leave behind, had been to the same euro-destinations. They had the same SUVs in the driveway and the same plasma televisions hanging on the wall. “What’s the point of being rich if everybody else is rich too?” he might have thought. “How am I supposed to enjoy what everyone can afford? And how come even people with low-paying jobs are living in McMansions not so dissimilar to mine? “No,” he concluded. “Something’s not right.” Of course, Johnny and Jannie Citizen were right to be leery. Their questions were understandable. It’s the answers that were — and still are — bogus. The public was told America was the most robust, dynamic economy on earth. They were told that housing prices would rise forever...that deficits didn’t matter...and that spending and splurging — rather than saving and capital formation — was what made a nation great. And when he began to doubt the spin, when he made to look behind the curtains, the same mainstream media read aloud to him blockbuster consumer confidence statistics and bumper holiday spending numbers...as if the road to the Mall represented a path to progress...and not the ruin of a nation. But, as Bill never tires of pointing out, man will come to believe what he must, when he must. Call it the incentive for denial. A powerful motivation. It must have been tough to admit that the riches of the past ten years were largely purchased with earnings from the next decade (and possible the next, too). It’s hard to admit the success was phony, the extravagance a scam, the pride a necessary, well-trodden step before the fall. But the check always comes due in the end. In the US, politicians are currently fighting over who is going to pay for it...or, more accurately, who will not. Can’t cut the euphemistically-named “defense” budget, says the Pentagon. Any such action might imperil “homeland security.” Can’t cut welfare benefits, say politicking candidates on both sides. The mere mention of such might imperil their own election bids. Healthcare subsidies? Nope. Too many vested interests and greasy palms. Energy initiatives, farm subsidies, education grants, extended unemployment benefits? Nope, nope, nope and nope. Same deal. Too many wolves and too few sheep voting on what to have for dinner. So who’s gonna pay? Nobody. And when nobody pays, everybody does...everybody, that is, except those running up the tab. We’ll have more on the “blood and spittle on the pub floor” tomorrow but, for now, it’s over to Ray Blanco and Chris Mayer with today’s guest essays...   Make “Big Oil” pay for your retirement Oil fat cats got rich on $4 gas. Now how’d you like to make them pay you back? This little-known “loophole” let’s you collect up to triple the retirement income most stocks or bonds pay... without touching the stock market... and all while “Big Oil” gets stuck with the bill. Click here now for all the details. The Daily Reckoning Presents The Cloud That Rains Money   Ray Blanco We live in a time when you can pick up a tiny computer, ask it a question out loud and have a satisfactory answer provided in a matter of seconds. It’s amazing if you stop to think about it. Voice-recognizing digital personal assistants have become commonplace. One such assistant is among the most important new features unveiled in Apple’s latest smartphone. Called Siri, it recognizes natural language questions and accesses a plethora of web services to provide an answer. Android-based phone users (like yours truly), on the other hand, have enjoyed voice recognition to navigate, search or compose messages since summer of last year. Of course, the answers to the questions we ask — whether verbally or through text input — usually do not reside in the bits and bytes contained in our smartphones, tablets or PCs. They sit somewhere out on the other end of a network connection, in “the cloud” — usually stored at a data center. However, whether residing in publicly available data sources or behind private firewalls, the total amount of data accumulation taking place is staggering. Truly, we are living in the “information age.” According to technology market research firm IDC, more than 1.2 sextillion bytes of digital data were created and stored between the beginning of the “information age” and the end of 2010 — a number so large that it is as incomprehensible as the US debt. The amount of data has grown ninefold over the past five years alone. However, like the national debt, the numbers show no signs of slowing down. IDC forecasts another 650% growth in total data by 2015. I’ll try to put the 2015 data into a little imaginary perspective. By my reckoning, if we stored it all as CD-ROM disks, we could build more than 33 stacks extending all the way out to the moon. There are also new twists emerging in the data storage market. Earlier, I alluded to cloud computing — the delivery of computing as an online service, rather than a product — which has entered an explosive growth phase as well. Apple’s new voice recognition software wasn’t the only big news at the iPhone unveiling. Another major Apple initiative is iCloud, where users can store everything from pictures to videos to music all online. Google, on the other hand, has delinked applications from end-user devices and placed them in “the cloud” instead. Google Apps allows users to access their documents and work on them regardless of whether they are using a traditional PC or a mobile device. Microsoft’s Office suite also includes locationless, Internet- centric functionality. Businesses are increasingly looking to cloud computing companies for the purchase of software and infrastructure as a service, instead of doing it themselves. Clearly, innovative technology companies addressing the needs of the data storage market will benefit from these accelerating trends. Regards, Ray Blanco for The Daily Reckoning   Ray Blanco’s Technology Profits Confidential Presents... Only 62 People Know Exactly Why These Four Companies Could Change the World Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as the story of our era. Click here for all the details.   The Next Big Story in Asia   Chris Mayer “It’s like Thailand was 50 years ago,” Alexandre de Lesseps told me. We were talking about the next big emerging market to bloom in Asia. It may surprise you, but it is one heck of a story... and opportunity. It also fits our grand thesis on emerging markets and is the subject of my upcoming book, World Right Side Up. The country I’m talking about is Myanmar (or Burma, as most people still seem to call it). I caught up with Alex over the holidays because I remembered his infectious enthusiasm for the country. He is an accomplished investor of frontier markets, those half-forgotten realms on the fringe of the investing world. Alex has been investing in Burma for 15 years as a partner at SPA Capital Partners, working with Serge Pun & Associates. The latter is an investment holding company that has been in Burma since ’91. (And yes, Alex is the great-great- grandson of Ferdinand de Lesseps, the French developer of the Suez Canal, who also oversaw the early construction of the Panama Canal.) I first met Alex at a dinner at a pleasant riverside restaurant in Phnom Penh, Cambodia. My friend Doug Clayton of Leopard Capital arranged the dinner. (We’ll hear from Doug in a bit.) I was in the middle of a swing through Thailand, Cambodia and Vietnam. When I asked investors in these places what the next big story to emerge from Southeast Asia would be, the answer was always the same: Burma. Burma is beginning, at last, to thaw. The grip of the military junta is loosening, by its own hand. (“This is very important,” Alex said. “The decision to change the country came from within. It speaks to the depth and substance of the changes taking place.”) The market is beginning to open up. Political prisoners have been released. Press censorship rules have been relaxed. Things are happening quickly. Even Hillary Clinton visited late last year, the first US Secretary of State to do so in 50 years. Alex told me he’s never seen anything like it in all his years in Burma. The hotels are full. Many are already sold-out for the first few months of the year. And Burma gets more and more mainstream attention nearly every week. Why is Burma important? In short, it has everything the world craves — in size. The Wall Street Journal reported: “Myanmar’s potential is too great for some investors to ignore. One of the last, large frontier markets in Asia, it is rich in oil, gas, timber and gems and has the potential to be a major rice and seafood exporter.” Estimates of natural gas reserves, for instance, would make Burmese fields the 10th largest in the world. Labor costs are low, which could support basic manufacturing. Doug Clayton visited Rangoon (Yangon) and wrote about it in his newsletter (it is available free at www.leopardasia.com — well worth the visit). Doug notes that Burma has the largest landmass in mainland Southeast Asia and big fertile river deltas. It has 1,240 miles of uninterrupted coastline, deep-water port sites on the strategic Indian Ocean, plus 600 little-used tropical islands. As home to more than 2,000 pagodas and temples and miles of pristine beaches, Burma could support a larger tourism business. “From my own wanderings in both countries,” Doug concludes, “I would rate Myanmar’s long-term tourism potential just as strong as Thailand’s — which draws 14 million tourists a year, versus Myanmar’s 300,000.” The comparison with Thailand is hard to miss, and Doug pursues it further. “To comprehend Myanmar’s potential, look over the border at Thailand, a country of comparable size and population,” Doug continues. “Around the time of World War II, colonial Burma’s economy and development surpassed Thailand’s.” Since then, though, Thailand’s economy is now 10 times bigger than Myanmar’s. Doug reckons that “the gap between these historical peers seems likely to narrow as Myanmar introduces a political system more similar to Thailand’s.” This is essentially the motive force behind the “world right side up” idea — this narrowing of historically anomalous large gaps in development to a world more in tune with longer historical experience (and hence, right side up). One of the books I read over the holidays was Thant Myint-U’s Where China Meets India: Burma and the New Crossroads of Asia. Thant continues the theme. Rangoon was once the rich capital of British Burma. It was an exporter of rice, timber and oil. “By the late 1920s,” Thant writes, “Rangoon exceeded New York as the greatest immigrant port in the world... Rangoon became a hub for all of Asia.” By the 1930s, Burma’s economy, on a per capita basis, was at least twice that of China’s. Today, China’s is about six times as great. That is a gap that ought to narrow as Burma opens up. Simple geography also anchors Burma’s importance. It sits between China and India like a hinge. It is a big country, the size of France, with 60 million people. Thant makes Burma’s unique position clear. If you draw a 700-mile radius around Mandalay, Burma’s second-largest city, you encompass a population of 700 million people — nearly one in 10 of all the people on the planet. It is a natural crossroads. Already, work has begun on a network of pipelines and highways and railways — all with Burma as the bridge to the two potentially biggest markets on earth, China and India. “There will be opportunities to invest,” Alex told me. Indeed, he’s already seeing investors line up. In the next several months, new funds will launch. The Tokyo Stock Exchange announced it would help Myanmar develop its stock market. Many companies are already trying to elbow their way in Burma. These are mostly Asian companies, as they are not covered by the sanctions imposed by the US and Europe. But some Western companies are already making inroads. Unilever sells soap and soup. Caterpillar, too, has a business there. And a few are still there as exceptions to the sanctions, such as the French oil giant Total. Overwhelmingly, the foreign investment has focused on oil and gas, mining and power. And Burma’s biggest investor has been China. (One Chinese businessman quoted in Thant’s book says, “I hope the sanctions last forever.” And why not? It keeps out the competition.) There is plenty of opportunity in basic things like cement and automobiles and hotels. And it’s all just beginning. We’ll keep an eye on Burma as opportunities open up. It’s an exciting time to be an investor as the world turns right side up. Regards, Chris Mayer for The Daily Reckoning Ed. Note: Chris Mayer never ceases to impress us. Not only is he a true student of investing, constantly reading about different theories and investment strategies; he also travels extensively, giving his subscribers some of the most informative “boots-on- ground” investment advice you can find. And his readers seem to know it... His Capital & Crisis newsletter has one of the highest renewal rates of any Agora Financial publication. It’s no secret why. Click here to find out for yourself. ---------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com How to Engender the Return of a Bull Market How Austerity Hinders an Economic Recovery Opposing Trends in Debt and GDP Growth Eurozone Economic Confidence Rises Euphoria Over Greek Debt Deal Fades Is Oil the New Anti-Dollar? The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor Additional articles and commentary from The Daily Reckoning on: Twitter Facebook DR iPhone APP To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription. 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