In August 2006, New York University economist Nouriel Roubini predicted a subprime crisis and subsequent recession. In September of that year, he burdened a gathering of the International Monetary Fund with his bearishness. And Roubini was profiled in a recent New York Times Magazine feature headlined “Dr. Doom.”

There are important points for the individual investor to understand about Roubini. As he admits, the destruction has been deeper and wider than he originally forecast, and timing and sequence of unwindings this significant are impossible to predict. But he understood the broader issues and their medium-term implications. Sometimes it’s good to pay attention to the “permabear” in the room.

And he also happens to betray some bullishness about the prospects for a recovery and what that global economy will look like:

I expect that the global economy can grow at a sustained rate in the medium term and that the integration of China, India and other emerging market economies in the global economy is a very important and positive trend over time. So, yes there is doom and gloom over the short term; but the medium term horizon will be brighter for the global economy if and when the mess of the current financial and economic crisis is fixed.

It’s easy to set up an American 20th Century/Asian 21st Century debate as a zero-sum game. Even calling it “the American 20th Century/Asian 21st Century debate” suggests more substance than is warranted, that a convenient dramatic flourish sufficiently describes the breadth and depth of experience and interaction among people and nations. The “Thrilla in Manilla” and “The Rumble in the Jungle” are historic fights, but, having not witnessed them in person or been in the ring to experience the blows, there’s no reasonable basis to conclude which was the best ever or the most bruising. 

Joshua Kurlantzick does the either/or thing right here, in The Washington Post. There are critical facts in the piece, details of past and present political problems that can be woven to predict many future outcomes. But from a broader view, once we cycle out of the current muck, the same supply-and-demand stresses that emerging Asia exerted will tighten back up. Look around: The middle class likes to drive, eat well and be amused. There are a lot of people in China and India, and their incomes are rising.

What seems already underway is a process the end of which will see Asia, primarily, and other emerging markets driving global growth. The US will remain a dominant geopolitical and economic power; it’s still about as big as the next five names on the list (Japan, Germany, China, the UK and France), and nobody can match its military might.

As it was on the way down, as it will be on the way up; there’s no way to say “when” with any certainty, but the best way for long-term investors to enjoy time’s impact on their portfolios is to focus on stress-tested businesses with strong balance sheets and stable cash flow.

On Sunday, US Treasury Secretary Henry Paulson announced one of the most important government interventions in the financial markets in decades. The details of the plan are available in the US Dept of Treasury Press Room.

As you might expect, reactions to a move that was likely necessitated by foreign central bank nervousness have varied.

Barry Ritholtz offers a 10-point summary of the deal’s particulars.

Terence Corcoran of the Financial Post serves up a Canadian’s perspective, saying essentially “good riddance” to entities that represented the corruption of free-market principles:

The ultimate resolution, over the next couple of years, will be to put this mortgage business back into private hands, a policy shift that will mean undoing the idea that government is the proper vehicle for fulfilling the American dream of home ownership.

Evan Newmark described it as “the largest nationalization in US history” on The Wall Street Journal’s Deal Journal blog but also writes that it’s a deal that should help the economy as well as please US taxpayers:

It is just good deal making. And it will end up working just fine for the people who matter. In this case, that would be the holders of Fannie and Freddie’s debt, mortgage applicants throughout the U.S., and the U.S. taxpayer.

They may not be happy that the US government nationalized Fannie and Freddie Mac, but they should thank Hank Paulson nonetheless.

The credit crunch has certainly been a stress test–for businesses as well as investors. The lingering questions are how long the US and global economic slowdowns will persist. The answer depends on the condition of the US housing market, and, while the nationalization of Frannie should loosen up the mortgage market (30-year rates declined by 0.5 percent almost overnight), there are still hurdles to overcome.

As is illustrated here, there are still too many homes on the market–11 months’ supply, compared to long-term norms in the five- to eight-month range–and prices are still too high. The existing mess of bad paper will be swept up, and Frannie has room to buy more crap as it’s ejected as those prices come down and that inventory shrinks. But there’s more pain for more homeowners ahead.

The latest, biggest, most consequential government bailout in US history reminds me of an email Barry Ritholtz posted to his blog, The Big Picture, back in August 2007.

The email was sent by a “CDO insider,” a guy with particular insights into the “before” and the “after.” Here’s an excerpt from the email to Barry:

XXXXXX and I were talking in 2003 about how shaky these low FICO, high LTV, 2/28 ARM’s that were being created were. People in the know knew then those loan products were going to be a problem in the future. Way back in 2003, it didn’t make sense.

In 2005, we all said “I hate the real estate market, I hate the credit spread, but my job is to keep doing this: Buying Collateral and issuing CDOs.” Everyone was the buying this shit to do any deal. The greed went thru the whole chain, from the home owner buying a property they couldn’t afford right up to the CDO manager buying subprime paper.

Bottom line: Greedy assbags are inefficient. Back in the 18th century, when he wrote what’s recognized as the foundation of capitalism, The Wealth of Nations, Adam Smith was concerned with small farmers and artisans trying to get the best price for their products to provide for themselves and their families. He advocated a market system built around pursuit of self-interest, not around the fulfillment of unrestrained greed. And sometimes government must intervene to correct inefficiencies. Plenty of corporate libertarians will no doubt benefit from this recent example.

Brent Fullard, the engine driving the Canadian Association of Income Trust Investors, is offering another challenge to Finance Minister Jim Flaherty:

The Whitby-Oshawa Federal Liberal Riding Association today announces that Brent Fullard will be the candidate for the riding of Whitby-Oshawa, subject to confirmation at a candidates meeting scheduled for Tuesday, September, 9, 2008.

Known for his tireless enthusiasm and dedication, Brent Fullard has devoted considerable time on a strictly volunteer basis as the CEO of Canadian Association of Income Trust Investors/Taxpayers, a group he founded to advocate for accountability and transparency from the Harper government and to reveal the government’s lies about so-called tax leakage.

Whitby-Oshawa is the riding currently represented by one perpetrator of the Halloween Massacre, Jim Flaherty.

We discussed the upcoming Canadian election, now officially set for Oct. 14, and its potential impact on income and royalty trusts in the September issue of Canadian Edge.

Fall is the perfect time to enjoy Washington, DC’s outdoor treasures and catch a glimpse of nature’s splendor. And this year you can enjoy the immediate aftermath of the Presidential election in the seat if the federal government.

Join me and my colleagues Neil George and Elliott Gue for the DC Money Show, Nov. 6-8, 2008, at The Wardman Park Marriott.

Go to www.moneyshow.com or call 800-970-4355 and refer to priority code 011362 to register as our guest.

We also have a special invitation for our readers. KCI Communications, Inc., is organizing an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal. Participants will have the opportunity to meet and chat with my colleagues Roger Conrad, Gregg Early, Neil George and Elliott Gue.

This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.

It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.

For more information, please click here or call 877-238-1270.

ARC Energy Trust (TSX: AET.UN, OTC: AETUF) cut its cash distribution amount by 14 percent in respect of its September production, citing a decline in commodity prices since June. The new monthly rate will be CAD0.24 a month, consisting of CAD0.20 in “base distribution” and an additional CAD0.04 “top up” payout.

ARC had initiated the two top ups in response to spiking energy prices earlier this year, particularly for natural gas. The first increase was by CAD0.04 to CAD0.24 on May 7. The second was another CAD0.04 increase on June 26, the portion which has now been rolled back. The good news is that ARC was able to pay that base distribution with a comfortable margin at oil and gas prices far below those of today. In addition, the massive cash influx from higher oil and gas prices this year has allowed it to follow through on new projects without significant new debt, thereby improving sustainability and ability to weather a return in gas and oil at least to where they began 2008.

Despite Monday’s and Tuesday’s selling, that’s plenty of reason to continue holding ARC. The trust’s cash flows will continue to be hugely affected by ups and downs in oil and gas, but ARC Energy Trust remains a buy for those without a position up to USD32.

Canadian REIT (TSX: REF.UN, OTC: CRXIF) has acquired eight retail properties in five provinces from Canadian Tire Corp (TSX: CTC.A) for CAD137.3 million. Canadian Tire will continue to run the stores but will now lease these facilities and pay rent to Canadian REIT for at least the next 15 years at current market rents, meaning the REIT won’t have to find new tenants.

Each property is either newly constructed or was renovated within the past three years. Three of the stores are in Alberta, two in Quebec, and the others are in British Columbia, Ontario, and Nova Scotia. Canadian REIT is a buy up to USD30.

Chartwell Seniors Housing REIT (TSX: CSH.UN, OTC: CWSRF) is buying the remaining 50 percent interest owned by Melior in seven retirement properties in Quebec as well as Melior’s 50 percent interest in the joint venture property management company looking after all of Chartwell’s properties in Quebec. The transaction’s price will be determined by independent appraisers; it will close within 60 days pending regulatory approvals. Hold Chartwell Seniors Housing REIT.

RioCan REIT’s (TSX: REI.UN, OTC: RIOCF) board of trustees has approved an increase to its monthly distribution to unitholders to CAD0.115 per unit effective with the September 2008 distribution payable in October. RioCan’s annualized distribution is now CAD1.38 per unit. Buy RioCan REIT up to USD25.

Natural Resources

Fording Canadian Coal Trust’s (TSX: FDG.UN, NYSE: FDG) buyout by Teck Cominco (NYSE: TCK) has received approval from the US Federal Trade Commission. Sell Fording Canadian Coal Trust.

Trinidad Drilling (TSX: TDG, OTC: TDGCF) is buying privately held Victory Rig Equipment Corp in a move aimed at boosting its oilfield equipment making capacity. Trinidad is paying CAD16.3 million for Red Deer, an Alberta-based company, and will combine it with its existing oilfield equipment manufacturing and construction businesses under the Victory Rig Equipment name. The new division, which will include Trinidad’s operations at Mastco Derrick Service and Automation Controls and Electric, “will offer an extensive range of drilling solutions including innovative and technically advanced rigs capable of meeting the growing challenges in the oil and gas industry.”

Trinidad is also making its first move into Mexico, moving three rigs out of Canada to earn higher day-rates and realize better utilization rates. The rigs will be deployed under a six-month contract on the southern edge of the Chicontepec field in central eastern Mexico. The operator has agreed to pay the costs associated with relocating the rigs into Mexico and returning the rigs to Canada at the end of the contracted period, if necessary, although there’s an option for a further six-month contract. It’s anticipated the rigs will remain in Mexico for the foreseeable future.

Trinidad is moving two rigs from Canada into the US, one to the Haynesville Shale in Louisiana, the other to the Bakken Shale in North Dakota; these rigs will be covered by long-term, take-or-pay contracts for periods of three and five years. Trinidad Drilling is a buy up to USD15.