The Daily Reckoning - Pearl Of The Adriatic (Sven Loren)

verfasst von Firmian, 24.03.2004, 01:10

-->Pearl Of The Adriatic

The Daily Reckoning

On the train again...

Tuesday, 23 March 2004

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

*** Many are life's tears... Dow down again... but so what?

*** What's the matter with the whiny voters? The figures lie...
How young people suffer... French bureaucracy (or is that
redundant?)...

*** War and the rally one year on: Are we safer now? And more...
more... more!

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

We were talking to a woman at dinner a few weeks ago when we
noticed she had tears in her eyes. We had been explaining why we
expected the world to end soon. Normally, our palaver draws
polite smiles or impolite yawns. It is rare for our audience to
break down completely. Wisely, people don't take it seriously.
And, wisely, neither do we.

What would it really matter if house prices were knocked down
20%? Would the plumbing stop working? Would the paint suddenly
curl and the drop ceilings fall down completely? Would the house
be any less comfortable or less ugly?

And so what if Microsoft trades for $10 a share (which we think
it will) rather than $25? Will the company earn less money or
sell fewer products? Will its employees grow lean with hunger or
its CEO get fat?

No. The only problem is that people have borrowed money against
these assets. And when the world ends -- which is to say, on the
downside of the great credit cycle -- the loans get called,
worked out, renegotiated, rescheduled, written off, discounted or
wiped out. The assets themselves go down in price and suddenly,
people find themselves 'upside down.' They owe more on their cars
than the cars are worth. Their mortgages exceed the likely price
of the house. Overall, their debts are greater than their
assets.

But what's the harm? In our book, we refer to this settling up as
a 'soft depression.' It is soft because the world is a much
richer place than it was in the 'hard' depression of the 1930s.
People are rarely on the verge of starvation in America today...
instead, they are on the verge of obesity. A little
belt-tightening would do them good.

Besides, the markets are there not to distribute capital, as
economists pretend, but to teach virtue. In that sense, bear
markets and recessions are like hangovers -- without them, we
might make spectacles of ourselves every night.

The man who has overstretched himself needs to learn... he must
snap back into a proper attitude. The business that has
overextended itself needs to shape up... or go into liquidation.
The investor who has paid too much must realize his mistake. If
there were no period of 'correction,' people would learn
nothing... and continue in error all their lives.

Fear not, dear reader....the coming downturn will be good for
you. But that is not to say that it will be delightful in every
way. Corrections are only useful if they are painful. That was
our complaint about the recession of 2001; there was not enough
pain to bring much of a gain. People learned nothing; instead,
they merely kept doing what they had been doing -- going into
debt -- with even greater recklessness. This time... or sooner or
later... happy insouciance is likely to give way to painful
prudence... and then to raw desperation.

There are corrections and disappointments... and heartbreaks...
everywhere in life.

Our line of chatter never got past the eardrums of our dinner
companion. The woman's moist eyes darted from us to her
husband... sitting on the opposite side of the table, engaged in
an animated conversation of his own. She couldn't seem to follow
our light conversation; she must have had heavier thoughts of her
own. Dull as we are, even we could figure out what they were.

Her husband, a man of about 50, had a face like a soap-opera
doctor... confident and very handsome, with white hair and dark,
tanned skin. He had a manner about him which was suave and
dignified, with a voice as rich and smooth as a fine port. It
must have been intoxicating to the fair sex.

The wife, on the other hand, had not aged well. She had grown
comfortably chubby....and looked as though she would make a nice
grandmother. It must have been a long time since a man had
courted her. Now, with her husband flirting by a younger, much
more attractive woman, it was impossible to flirt with her at
all. She couldn't keep her mind on it.

But wait just a minute... that's Elizabeth he's flirting with...
!

Meanwhile... back on Wall Street....

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

Addison Wiggin covering the markets from... er, Paris...

- What's better than a toilet paper company in China adding an IT
subsidiary then scoring 97% gains on the first day of their IPO?

- Well, nothing really. Except maybe the companies first product
when compared to its stock certificate. At least the TP has a
functional value. Still one loyal Daily Reckoning sufferer
suggested we would be remiss if we pointed out the Chinese
company's contribution to the pao mo bubble without mentioning
this gem: On January 24th, 2004, Barrington Foods International
Inc. underwent a restructuring, and changed its name to U.S.
Canadian Minerals Inc.

-"Now, when a food company turns into gold mining," our
correspondent asks"are we a bit ahead of ourselves already?"
Well, certainly we might respond. And add, as has been oft
repeated since the gold price began knocking its head on the $400
level, the miners can certainly be as volatile as your average
Nasdaq bespeckled tech stock. But at least the underlying asset
has a tangible quality. And its pretty to look at too.

- You'll have to forgive us. The lesser of your two evil Parisian
editors spent the morning up close and personal with the French
national past-time: bureaucracy. We woke this morning to discover
our first-born could not hear. Needless to say we panicked and
whisked him off to Necker Hospital (pour les enfants malades).
Although we've been there several times before the woman behind
the desk insisted we register again. Just as well, really. When
she keyed in the information she spelled the kid's name wrong and
entered an incorrect address. If we have to go to the Necker
again, we'll actually have a choice of names under which to
register him.

- After filling out paper work at the first desk we had to do it
all over again at the desk directly behind. This woman had a
whole paper full of bar code stickers to play with and promptly
started affixing them to registration cards, folders, envelopes
and other pieces of paper... all the while mumbling directions
to someone (presumably the child's father) in a strong foreign
accent of indiscernible origin. We think she motioned us to sit
in the waiting room amongst a gaggle of other screaming enfants,
or at least that's what we did next. Then we waited and waited.
And waited.

- As we waited, we began to see the genius of it all, though. At
one point we counted twelve administrative personnel. One in
particular had the riveting job of stamping documents with an ink
pad and stamp. That's all she did. And when there were no
documents to stamp, she sat... and primped. She was pretty so we
didn't mind. Until that moment we didn't really understand what
was going on. But then it struck us: this is why there are so
many astoundingly attractive women in Paris. They get paid to
primp.

- When one of the few doctors in sight finally deigned to take a
look at our son's ears, it turned out he has a sinus infection.
The medicine prescribed 3 different drugs (prescription drugs
being another French pastime) and sent us on our way in about 5
minutes. As instructive as the scene was, and as happy we were to
discover our son was healthy... the morning was otherwise
completely wasted. Of course, now you have to suffer.

- Like a child who is drawn to a hot flame despite the admonition
of its parent not to play with fire, investors yesterday sunk and
lost more money in the overvalued major indexes."Last Friday saw
this year's first weekly back-to-back declines in the S&P 500,"
observe our friends at Elliottwave.com"The Dow Industrials have
ended lower in 6 of the 11 weeks this year, the NASDAQ in 8 of
11... [yet] Cash is flowing into US stock mutual funds at the
fastest rate since early 2000."

- The Dow closed at 10,064 yesterday, off 120 points or so on the
day. The Dow is now 6.7% off its recent top of 19th February. Yet
lumpus Americans added a whopping $30.5 billion to his US stock
mutual fund holdings last month. Although down on January, last
month's rate - if annualized - suggests 2004 will top even 2000,
when American retail investors poured a record $309 billion into
stock market mutual funds.

- For it's part the S&P lost 14 to 1095... the petulant Nasdaq
fared even worse, losing 31. But the reflation rally has still
been good to those who got in a year agao. On March 23 2003, the
Nasdaq closed at 1369, it now trades 1910. Herein lies the
impetus for Johnny Q. to"get back in the markets." Too bad
insiders are cashing out 56 to 1 against them.

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

Bill Bonner back in London...

***"WHAT IS THE MATTER with the whiny American voters?" asks
Robert Kuttner in the Boston Globe."They keep telling pollsters
that they think America is on the 'wrong path'. But don't they
read the statistics? Don't they know that unemployment is at a
comfortable 5.6 percent, that inflation is almost nonexistent,
that the economy is growing smartly at around 4 percent?"

Ah ha... we have an answer. The figures lie. Kuttner points out
that a lot of the cost of living numbers are an illusion.
Adjustments and various finagles keep them lower than they really
are. Education, health care, housing -- everything you can't
import from China -- are going up faster than the numbers
reflect.

But the larger problem is that while the economy is 'growing,'
what is really being measured is the rate at which Americans dig
themselves a deeper hole. They spend more than they earn... it
looks like 'growth' to the typical blind economist. But it makes
the voters whine; they're having a hard time keeping up with
their growing debt burdens.

Kuttner also notes that couples are frequently forced to support
their children much longer than they used to.

*** The Village Voice explains why debt is behind this trend
too:

"The average collegian in the U.S. isn't graduating into a world
of boundless opportunity, but rather is $20,000-plus in the hole
thanks to student loans and credit cards. So begins the snowball
effect: The most desirable entry-level jobs often pay wages too
low for the indebted, who must fork over a large percentage of
their salaries to Sallie Mae or Citibank. Other posts are
reserved for those who can afford to work unpaid
internships, or whose parents can support them through an extra
year or two of graduate studies.

"Employers are increasingly reluctant to defray the cost of
health care, so tack on an extra several hundred bucks a year,
even $2,000 or more for the technically self- employed 'permanent
temps', as the saying goes. Though
housing is supposedly cheaper than ever, due to record-low
interest rates, the ambitious young aren't necessarily enjoying
the trend. Rents in many metro areas, where a good portion of
knowledge-based jobs are located, remain sky-high...

"High levels of debt preclude the young from getting the sweetest
mortgage deals, and they often end up in the clutches of
sub-prime lenders. On average, people who had to borrow their way
to a graduate degree are already behind $45,900; median debt for
grad students has increased 72 percent since
1997. (Aspiring doctors have it the worst, with average loans of
$103,855.) Add to those obligations an investment in a humble
bungalow, and you're on the hook for a quarter million or more -
not counting interest."

*** Last week marked the 1-year anniversary of America's war
against Iraq. Is the world really a safer place, we wondered? If
so, the papers have missed the story...

"Instead of making the United States safer from attack....the
Iraq war has actually made it more vulnerable by fomenting
anti-American feelings and taking military resources away from
the hunt for Al Qaeda," says the International Herald Tribune
today, attributing the idea to Richard Clarke, a former
counter-terrorism official who has a new book out:"Against All
Enemies: Inside America's War on Terror."

More than 500 Americans have been killed in the Iraq war... most
of them since the war was officially won. The death toll among
the enemy -- including women and children -- is said to be over
20,000, according to the French newspaper"Liberation."

Before the war, Saddam Hussein was minding its own business, like
any dictator -- torturing his citizens and destroying his
economy. Now, America is destroying its own economy...
borrowing billions of dollars in order to try to 'build a nation'
and 'empower women', according to Thomas Friedman. But almost
every day brings news of setbacks -- bombings, murders, and
terrorist attacks. And what do you expect, asks Friedman. It
was a great project... 'revolutionary' and uplifting in almost
every respect... but the Bush Administration bungled it by not
sending more troops and spending more money. The NY Times
columnist believes that it takes a lot of fighting men to build a
civil society.

The trouble with a war against terror is that your enemy changes
too often. Yesterday's news brought the story of a
terrorist-style attack on a paraplegic -- a man so incapacitated
he wouldn't have been to jaywalk, let alone assault anyone. The
poor man has been in a wheelchair, unable to move his arms or
legs, for the last 55 years. We must have missed the trial, but
apparently, the Israelis sentenced the man to death in
absentia... and carried it out in Gaza. They blew him up as he
was being wheeled to his home.

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

The Daily Reckoning PRESENTS: From time to time we like to take a
break from Fed bashing and market skepticism to bring you...
what's this?... a novel (and sunny) way to make money?

PEARL OF THE ADRIATIC
By Sven Lorens

Imagine looking out from the balcony of your beachfront property
across beautiful, uncrowded beaches to the crystal-clear water of
the sea - waters that French diving legend, Jacques Cousteau,
described as"the cleanest and clearest" in the world.

Think of a country... bathed in sunshine 300 days of the year...
so mild that subtropical vegetation covers the landscape and the
aroma of olive, fig, and lemon trees is carried on the breeze.
Here's a clue: in the early 20th century, this country was a
holiday destination for the European royalty.

Italy? Spain? Greece? Nope. I am talking about Croatia - a
soon-to-be-discovered paradise with more coastline than any other
European country!

Most people associate Croatia with the Balkan war. But the war
ended nine years ago, and times have changed. Now Croatia has
become the gentle, friendly, Mediterranean country that it once
was.

40 years of war and socialism made this area a no-go zone for
investors and tourists alike. Real-estate values were destroyed,
along with everything else... but this all about to change.

We would like to show you why some properties in Croatia may gain
as much as 200% in value over the next five years, and probably
much more:

The election in 2000 brought a market-orientated government to
power, and between 2000 and 2002 the Croatian economy grew by
2.9%, 3.8% and 5.2% per year. The new government has given
foreign investors the same rights as local investors - free
expatriation of principal and profits. This new found political
and economic stability has opened a window of opportunity for
enterprising individuals - Croatia's most important assets are
starting to draw the world's attention... features are beginning
to crop up on the holiday pages of national newspapers, in travel
publications and on the internet.

An army of tourists will soon be swarming over the village
markets, the beaches and the nightclubs.

Croatia boasts nearly 1,200 islands... and what beautiful islands
they are! If you ever travel to Croatia, take a boat and go out
to sea: you'll be amazed by the clarity of the water... you can
still see the seafloor miles from the nearest land!

The country offers some of the highest quality property in the
Mediterranean, yet prices are the lowest in the region. And even
though prices have already started to rise significantly, the
general price level is still 50% below 1990 levels... and you
won't have to pay €8 for a cappuccino!

The current level of tourism is still less than 50% of levels hit
at the peak of the 1987 tourism boom... yet the quality of the
country's infrastructure is be far superior... and improving
every day.

Up to now, only the northern part of the country has been easily
accessible. Anyone wanting to drive from Italy, Switzerland,
Austria or Germany into the southern part of Croatia had to spend
almost a day driving along a narrow coastal road that was
literally hewn from rock. But seven months ago, a dual
carriageway opened from Zagreb to Split, and it's going to be
extended to the tourist regions around Zadar in 2005 and
Dubrovnik in 2008.

And accessibility by air is set to improve too. So far
Dubrovnik... the 'Venice of the Adriatic', could only be reached
by air if you changed at Zagreb, making it a four-hour journey
from London. But we expect Western European discount airlines to
soon start offering more direct flights to Dubrovnik, opening the
floodgates to tourists and property investors.

Bargain hunters should look at the island of Korcula, which is
linked to Dubrovnik by a three-hour ferry transfer. The main
village, Korcula, is much smaller than Dubrovnik, but is equally
charming. The east of the island offers gorgeous beaches
although, as everywhere in Croatia, they are pebble or rock
beaches.

Experience shows that for holiday properties that are more than
one hour away from the nearest airport, more than 25% of all
potential purchasers lose interest. An hour and a half, and 50%
turn the offer down. With Korcula being a rather long ferry ride
from Dubrovnik, prices have stayed very low. But the plan to
build an airport on Korcula will change all that.

Here are some examples to give you a better idea: an apartment in
the old town of Dubrovnik will set you back €5,000/sqm or
€3,000/sqm if it requires renovation. In Korcula, you can still
buy flats in need of renovating for €1,000/sqm! It's not beyond
the realms of possibility to imagine prices doubling in two
years, and tripling in five.

Another offer we came across was a house in Lumbarda, in the
northeast of Korcula. The area's scenery is probably the most
beautiful of the entire island. The ground floor of a two-floor
house, with 80sqm living space, 250sqm garden, and direct access
to the sea with the possibility of mooring a yacht or motorboat
right in front of the house, was on offer for €135,000. The bay
surrounding the house was nothing short of breathtaking.

Korcula is, by any stretch of the imagination, a gem of an
island, only lacking in accessibility. In a few years,
opportunities will no longer be available in places like
Lumbarda. The properties will have all been snapped up. The
same happened in Tuscany after World War II, and in Spain after
the Franco-regime.

Whether you are looking for a nice holiday home in an idyllic
corner of the world or the opportunity for a lucrative
investment, Croatia deserves a closer look. The factors that I
have mentioned above virtually guarantee that property prices
there are going to catch up with the rest of the Mediterranean
region. The country's natural beauty and climate ensure that
property will always maintain a high intrinsic value. And with
stability on the political front, it's difficult to imagine
prices falling. At the same time, the improved access to the
country should provide plenty of additional demand for property,
which will only find limited supply.

Croatia certainly looks like a value property investor's dream.

Regards,

Sven Loren
For The Daily Reckoning

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gesamter Thread:

• The Daily Reckoning - Pearl Of The Adriatic (Sven Loren) - Firmian, 24.03.2004, 01:10
  • Dt. Fassung - Firmian, 24.03.2004, 20:41