Stay on Your Toes

The Daily Reckoning – Weekend Edition
September 30 – October 1, 2006
Baltimore, Maryland
by Chris Mayer

MARKET REVIEW: STAY ON YOUR TOES

The price of oil recently hit a six-month low and is now down 30% from its high of $78.65 last month. The decline did not surprise me. Granted, the price of oil surged to highs I did not expect. Fortunately, my investing approach does not depend on such guesswork.

Nonetheless, I remain fairly wary of putting new money in oil stocks. I have a handful of stocks I like and that I am giving another hard look – given the recent slide in oil, it may be a good time to buy here. But I worry about the popularity of the idea – not just of oil, but also of commodity investing generally.

The Wall Street Journal reports: “After long shying away from oil, natural gas, metals and other raw materials, investors of all stripes – hedge funds, pension plans, endowments and individual investors – have become enamored with commodity investing.”

Exhibit A: There are now 68 commodity-oriented hedge funds. There were only 29 three years ago.

Exhibit B: There are now 48 mutual funds specializing in commodities – and they hold $56 billion in assets. This compares with only 34 funds and $10 billion in assets only three years ago.

And none of this includes money invested in commodities by funds not specializing in commodities.

I feel like it is a popular place to be, and that makes me wary. Violent swings, like the one we saw in oil, will become more common. Because just as quickly and easily as that money flowed into the commodity sector, it can just as quickly rush out.

Be on your toes, reader. The commodity boom may yet have lots of legs. But it pays to be careful. My guess is that commodity investors have already made the easy money.

Regards,

Chris Mayer
for The Daily Reckoning

P.S. There is one commodity that I’m still interested in…the most vital commodity on earth: water. Yet not only do most of us never give it a second thought… but you can’t trade it directly, on any financial exchange, like you can wheat and grain, orange juice, steel, gold and silver, or natural gas and oil. Still, world water trade is soaring.

— Daily Reckoning Book of the Week —

Empire of Debt: The Rise of an Epic Financial Crisis – Now a NY Times Best Seller!
by Bill Bonner and Addison Wiggin

“Watching the news is a bit like watching a bad opera,” say best-selling authors Bill Bonner and Addison Wiggin. “You can tell from all the shrieking that something very important is supposed to be happening, but you don’t quite know what it is. What you’re missing is the plot.”

After a generation of being spoon-fed reality by media, it’s understandable that Americans are confused about the state of their nation. In their newly released book, Empire of Debt, Bonner and Wiggin wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions.

Americans are rapidly facing a choice: recognize these dangerous delusions and take steps to avoid their collapse. Or remain ignorant of them and risk losing all of their wealth when the house of cards comes crashing down.

Daily Reckoning readers can purchase their copy of the book that The Economist called one of the top ten books that will “tell you what’s really going on” – at a discount – by clicking here:

“The Most Feared Book in Washington!”

THIS WEEK in THE DAILY RECKONING: Did you happen to miss an issue of The Daily Reckoning this week? Never fear, we have them all catalogued for you, below…

Low in the Water   09/29/06
by Bill Bonner

“The remarkable events in the last few days have been greeted by the market, not with shock and awe, but with such a coma-like indifference that we feel like holding a mirror under its nose and taking its pulse. Read on…”

Big Government Solutions Don’t Work 09/28/06
by Hon. Ron Paul

“At home I’m frequently asked about my frustration with Congress, since so many reform proposals go unheeded. I jokingly reply, ‘No, I’m never frustrated, because I have such low expectations.'”

Past Bubble Experience Was Different 09/27/06
by Dr. Kurt Richebächer

“When bubbles burst, a ripple is sent through the whole economy – and the bubbles of today are much further-reaching that those of twenty or thirty years ago. Dr. Richebacher explains…”

Time to be Cautious   09/26/06
by James Boric

“Dr. John Hussman is one of the great fund managers alive today. His Strategic Growth Fund has averaged a 13.39% annual gain since it was started in July 2000. James Boric explains the key to Dr. Hussman’s success, below…”

The Insane Hell of Fractional Reserve Banking 09/25/06
by The Mogambo Guru

“What is making the Mogambo crazy with fear this week (or at least as afraid as all the meds he’s on will allow)? Just the usual suspects: his wife, the Federal Reserve, and, of course, inflation. Read on…

FLOTSAM AND JETSAM: Argentina is often overlooked – but the country varied, beautiful, sophisticated… and undervalued, which means it makes a lot of sense right now – whether you’re in the market for a primary residence overseas, a vacation home, or simply a smart investment. Read on…

Undervalued Argentina: Four Ways This Inviting Nation Makes Very Good Sense Today
by Barbara Perriello

Perhaps you dream of a high-ceiling pied-a-terre in a cosmopolitan city… or a swath of land where grape vines grow and you can walk for miles…

Or maybe you long for a mountain retreat where snow-capped peaks offer heart-stopping views and world-class skiing… or perhaps you always imagined yourself a land baron – steward of a vast, productive expanse…

Whatever your dream, you may be pleasantly surprised to find there’s one nation where it’s not simply attainable – but remarkably affordable, to Argentina.

Today, Argentina is on a steady recovery after the crisis in 2002. The economy is among the fastest growing in the world, expanding at a rate of 8.6% over the past 12 months.

But that doesn’t mean you’ve missed the good deals. Far from it. In fact, compare what you get in Argentina to what you’d pay for comparable property in Europe (and Argentina is decidedly European), and you’re still looking at an extraordinary value.

In fact, there are (at least) four smart ways you can take advantage of your purchasing power in Argentina today and position yourself comfortably for potential appreciation gains as the economic recovery continues.

1. Stake Your Claim in the Buenos Aires Apartment Boom

Buenos Aires is a vibrant city, which has a sophisticated, genteel Latin flair… but is cosmopolitan like New York or Paris. Large boulevards, expansive parks and plazas, tall trees… it’s a walking city with an aristocratic European feel. Here people use all the community green space. Stroll through a park, and you’ll see people reading, picnicking, talking… and dancing the tango.

In neighborhoods I like, properties are appreciating anywhere from 10% to 25% a year.

In upper-crust Recoleta, you can find a luxury rental on offer for just US$124,000. It’s a one-bedroom, one-bath apartment completely renovated in 2005 and done right.

In historic Barracas, you can own a fabulous loft in a restored building for a mere US$63,000 – and that includes private parking as well as access to a heated pool, gym, spa, and private green space.

2. Cash in on China’s Demand for Lumber

Stumpage prices for timber in Argentina have tripled in the past five years in terms of US dollars. Hardwood grows nearly 65% faster here than in the U.S., and after harvesting, it re-sprouts on its own.

Meanwhile, China’s demand for wood has grown 400% over the past five years – it has trouble finding enough pulp to meet its toilet-paper needs alone. China now looks to Argentina for all its paper needs, and there’s a fortune to be made…

You can capitalize on this opportunity in the region of Misiones, for instance, at the La Negra Forestry Trust project. There you can own lakefront property where you could build your dream home, and at the same time, you get forested land with your purchase – land that is managed for you and, upon harvest, is projected to yield healthy returns.

3. Own a New World Vineyard – Like Napa Valley for Pennies on the Dollar

Argentina’s vineyards are winning accolades around the world. Its wine exports to the United States are up more than 50% over the past five years, plus producers are making inroads into European markets as well. Many of the best labels are just now appearing abroad. And so you can still get in at the ground floor in the best grape-growing terroir region in the country.

If you’re interested in vineyard land, you can own that at a small fraction of what you’d pay in Napa Valley, where you’d have to come up with millions.

4. Enjoy Patagonia’s Vacation Playground – Think Aspen, Only Priced Like Rural Kansas

Bariloche is to Argentina what St. Moritz is to Switzerland or Aspen is the U.S. From June through September, this upscale ski resort is the place to see and be seen. But it’s just as nice in the off-season when visitors come to hike, fish, sail, ride horses, swim, and sun.

Bariloche was founded in 1895 by German-Swiss settlers and still retains an Alpine flavor… chalet-style buildings with flower-filled window boxes… chocolate factories and fondue restaurants.

Yet here, despite the high-collar zip code, you can still own property for under 100,000, much less than Lake Tahoe or Aspen… and that at the Arelauquen Country Club. This is a high-end retreat by any starlet’s standards, with fine amenities like a golf course, polo club, marina, pools, five restaurants, and more.

Argentina – Good for Your Heart, Easy on Your Wallet

The good values you’ll find today in Argentina will impress you. But what will strike you as just as attractive – perhaps more so – is how unabashedly beautiful, welcoming, invigorating, and comfortable a place it is to spend time.

I’ve traveled to Argentina three or four times a year for the past five years – sometimes on my own and sometimes escorting small groups of adventurers – and I’ve never met a single traveler who didn’t fall in love with this beguiling nation.

It’s a nice combination, when you think about it: Argentina makes smart sense both for your wallet… and your heart.