The Rude Awakening Presents: Three great investors square off at the Money Show
in Orlando. The clash was mediated by Addison Wiggin
and recorded by Eric Fry…here's what happened:

--- Advertisement ---

-------------------------
 
THE GREAT DEBATE
by Eric J. Fry

"Who here in the audience likes small caps?" James Boric,
editor of Penny Stock Fortunes, polled the attendees of the
World Money Show yesterday. "Who thinks - like I do - that
small caps offer some of the stock market's very best
investment opportunities?"

Nearly every conference attendee raised a hand. (One guy
seated close to your New York editor raised both hands).
"Wow!" said James, "That's the most enthusiastic response
to small caps I ever seen at a conference!"

"Maybe that means they're a short," quipped Chris Mayer,
editor of the Fleet Street Letter. A few of us laughed…a
very few of us.

Throughout the panel discussion - which featured Boric and
Mayer, as well as Strategic Investments editor, Dan
Denning, and part-time Daily Reckoning editor Addison
Wiggin as moderator - Boric trumpeted the achievements and
virtues of small-cap stocks.

At the conclusion of the panel discussion, attendees
swarmed around Boric. The value-investing Mayer, by
contrast, departed the conference hall completely
unmolested. Hmmm…your New York editor surmised, maybe
small caps ARE a bit too popular for their own good.

Boric admits the small-cap sector has become a bit pricier
than it used to be but he still finds plenty of small-cap
stocks worth buying. About halfway through the discussion,
Boric rattled off a slew of statistics to demonstrate that
small caps deserve more respect than they have
traditionally received. "Small caps have trounced the S&P
500 for the last six years in a row," he boasted. "And even
after this lengthy out-performance, the small cap sector
still contains a healthy share of the market's most
attractively valued stocks.

"Remember," Boric continued evangelically, "small-caps
(i.e. - stocks with market capitalizations below $1
billion) represent two thirds of the U.S. stock market. If
you turn your back on small caps, you are turning your back
on two thirds of the U.S. stock market.

"Small caps have led the stock market out of EVERY bear
market," Boric emphasized. "And they just did it again."

Boric speaks the truth, of course. But it is also true that
small caps are pretty good at powering bear markets. They
may not lead bear markets very often, but they follow with
a vengeance.

Boric's impassioned argument failed to convert Denning.
Instead, Dan feigned professional courtesy toward his
small-cap colleague by conceding the possibility that small
caps COULD deliver additional gains in 2005. Nevertheless,
Denning advised discretion rather than valor.

"Investors need to evaluate every investment opportunity in
the context of global trends," said Denning. "It is myopic
to focus on U.S. small caps at the exclusion of all
macroeconomic influences.  Your narrow focus on small-caps,
James, reminds me of a quote from Robert Heinlein:
'Specialization is for insects.'

"Sure small caps have been rallying," Denning continued,
"but so has just about everything else - large caps,
emerging market stocks, real estate, gold,
oil…everything. As I see it, small caps are just one of
the many beneficiaries of a U.S.-centric asset inflation.
Assets here in the states have been inflating for so long
that there's little value left in any of them."

"Well I don't completely agree," countered Chris Mayer. "I
am still finding some very attractive stocks that are well
positioned to benefit from China's long-term economic
boom."

"Yeah? Let's here 'em!" bellowed an old gentleman near the
front of the room. "You guys all have these different
views, so why don't you tell us how you would actually
invest. Tell us your best two ideas."

"And your best two shorts!" another guy yelled out.

At this point, the three editors' seemingly disparate
philosophies converged around a central, unifying theme:
China.

"I like BHP Billiton [NYSE: BHP], the big Australian mining
company," said Denning. "This company is sitting right on
China's doorstep, supplying that vast Asian economy with
iron ore and various other metals. This thing is a solid
long-term play. I also like Newmont Mining, a name you all
know."

Mayer continued the China theme by recommending Agrium
[NYSE: AGU], a diversified fertilizer company. "Economic
prosperity in China leads to increased meat consumption,
which requires increased corn production as feed for
livestock. Corn requires more fertilizer than any other row
crop. So Agrium sits right in the middle of a bullish long-
term trend. And the nice thing is that the stock still
sells for less than 10 times earnings."

Even Boric played the China card, when offering up his
recommendations to the audience.  "I like J-A-D-E. That's
the symbol. This is a U.S.-based jewelry retailer with big
expansion plans in China. The company is already performing
well here at home. But it plans to open about 130 retail
outlets in China over the next three years."

On the short side of the market, Boric deferred to his
slightly-more-bearish colleagues. Mayer named Fannie Mae
[NYSE: FNM] and Countrywide Financial [NYSE: CFC] as two of
the stock markets least attractive names. "Those two are
probably a couple of pretty good shorts," he suggested.

Denning zeroed in on the REITS as attractive shorts.
Specifically, Dan suggested "ICF," the iShares Cohen &
Steers Realty Majors. "I've been negative on this group for
about two years now…and therefore wrong for about two
years. But I'm not changing my view."

"Thanks gentlemen," Addison complimented his colleagues. 
"I'm happy we didn't spill any blood this morning. I think
we aired some pretty good ideas without coming to blows."

As Addison stepped away from the podium, he turned to your
New York editor and said, "Well it's too early to go to the
bar. So let's grab some breakfast."

[Ed. Note: James Boric is without doubt one of the most tireless
advocates for small-cap stocks. But not as an index. He
looks for the individuals…the stocks no one else has
noticed, and whose valuations reflect it. The strategy
works. Here's more information: 

http://www.agora-inc.com/reports/PNY/tweedyB23

--- Advertisement ---

Get Ready For a Shocking Glimpse… "China, 2050"

The year is 2050. China is the richest, most powerful
nation on earth.

And America's Golden Age has come to a crashing end.

Impossible?
 
Don't be so sure… Protect yourself now, and you can not
only "China Proof" your money… you can also use these two
simple investments to multiply your wealth by as much as
794%…

http://www.agora-inc.com/reports/DRI/WDRIF206

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

Did You Notice…?
By Eric J. Fry

"China's unwavering willingness to help plug America's
growing current account deficit is not a big problem,"
Donald Straszheim declared yesterday during a panel
discussion at the Money Show. "The Chinese understand what
they are doing and they are doing it willingly.  This is an
arrangement between consenting adults.

"Nothing matters more to the Chinese than jobs," the former
Merrill Lynch chief economist continued, "and they
understand that providing capital to the U.S. helps the
American consumer to walk into Wal-mart and buy Chinese
products, which helps create jobs back in China…Surely it
must end sometime, but who knows when or how."

To be sure, this arrangement is consensual. But it is not
exactly mutually enforceable. The Chinese may withdraw from
this affair whenever they wish. But the other consenting
adult may not. We Americans are consenting to a kind of
financial assistance - who wouldn't? But we don't control
the relationship; the Chinese do.

In effect, the Chinese do much of our saving for us. The
U.S. stock market also does a lot of "saving" for us.
Unfortunately, both of these sources of "savings" are
unreliable, at best. As the chart below illustrates, the
American savings rate has plummeted while stock prices have
climbed. In effect, stocks (as well as home values) have
been compensating for America's lack of savings.

But America's quirky, and inherently unstable, financial
structure only works as long as financial asset prices
rise, and as long as foreigners continue providing capital.
However, any reversal - or even moderation - of these
trends could devastate the U.S. economy.

America's financial vulnerability does not guarantee an
adverse outcome, but it does improve the odds.

[Ed. Note: Like the presenter of a nature documentary, Dan
Denning has been studying every aspect of the global money
migration. China is the 600-pound gorilla:

Appetite for Creation 

And the Markets…