It looks like it may be time to wag the dog a bit as President Obama is losing traction in national polls and the administration has taken a significant amount of heat for mid-east policy failures that recently culminated in the death of an American ambassador. Read more…

U.S. troops available for deployment to fight a full-blown war is 1.4 million, with an additional 2.1 million, if all of NATO were to oblige. Read more…

Dominique de Kevelioc de Bailleul: War drums beat in the Middle East and, now, the drums suddenly beat strongly between two Asian mights.  That, on top of a global financial system on the brink of entering the slide to hyperinflation has many thoughtful analysts suggesting Read more…

Mac Slavo: America is about to be put through the meat grinder and despite what President Obama or Governor Mitt Romney say they will do to fix the fundamental issues facing our country, the end result is inevitable. Read more…

A seminal speech was delivered a few weeks ago by President Obama at the State Department, in it he outlined a radical switch of policy in the Middle East.  Such an error in judgement was made once before when Jimmy Carter suggested that we democratize Iran.  What occurred was  destruction of an ally in the Shah and replacing him with a purported force for democratization in the persons of the Ayatollah and the Mullahs.

Just look at what we got stuck with.  Our present course in the Middle East may be a repetition of this error.   There is no guarantee that what may be thought to be democratic for Westerners, may be counterproductive in a completely different arena.

Far from there being an Arab Renaissance, we may be witnessing the formation of a Islamist Spring, followed by an Arab Winter.  Hope may rise eternal that American style democracy can emerge from a fundamentalist, theocratic mindset.  This may be a thin blanket for a cold night.  Anti American and Israeli sentiments may not be far from the surface of what is though of as a movement toward Jeffersonian Style Democracy.   Suffice it to say, The U.S. may be imposing Western beliefs on Middle Eastern customs and traditions established for over a thousand years.

Such developments may well constitute exactly the opposite of what our strategists are planning.  Black swan anyone?  Turbulence, instability and uncertainty have usually been a prescription for precious metals and natural resources as a safe haven.

From where is all the money coming to pay for all these planned excursions?  Can an already troubled financial system handle additional burdens that threaten to break the camel’s back?

We read about debt limit, budgetary woes, foreclosures, unemployment, Eurozone debt crisis, the possible loss of a AAA credit rating and a myriad of domestic travails.  Shouldn’t we first repair our own home first?  Sound money and a sound fiscal body is vital for our national health.

Interestingly, the precious metals and mining indices are moving higher, while the equity markets are declining showing relative strength breakouts.  The Dow-Gold Ratio has shown a major breakdown through the 8 to 1 ratio.  We are seeing an eerily similar setup to the Great Depression and the 1970’s where paper money such as equities are seen as less valuable than hard assets.  Investors are seeking protection in precious metals due to this dollar devaluation and disappointing economic recovery.  Despite bailouts, record low interest rates and quantitative easing the Dow-Gold ratio shows that the economic recovery has been ineffective and inflationary.

Gold and Silver are showing signs of fortitude during these equity sell offs maintaing its status as an authentic safe haven .  A significant continuation in trend may be beginning where precious metals may move higher while equities continue to correct as investor look to hold real money over paper.  This breakdown in the Dow Gold Ratio signifies major inflation and economic weakness ahead.

The S&P is showing negative divergences between price and momentum an indication of further price decline.  The absence of relief rallies over five weeks in equities and the outperformance of gold indicates investors are interested to hold hard assets going into the conclusion of QE2.  All eyes are on the financial markets as QE2 expires.  Investors are exiting the dollar as well as equities and moving into hard assets.  The market may be signaling future accommodative measures especially if the equity market continues declining.

I invite you to follow my favorite sectors (precious metals, uranium and rare earths) with me on a daily basis with my technical intelligence reports and intra day chart videos by clicking here.

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Gold Soaring In Comparison To Stocks

Stocks fell again yesterday, down another 20 points or so. That’s six for six sessions in the red. And they’re down again, if only modestly, this morning. Gold is down too, off 8 bucks and change over the past 24 hours. But oil…oil is up big after, as one of the papers announced, “OPEC talks broke down in acrimony on Wednesday after Saudi Arabia failed to convince the cartel to lift production, sparking a rebound in global oil prices.” A “larger than forecast” drop in US inventories also helped push the price higher.

So let’s see… That’s a flat line for oil output, less in the reserve tank, increased global demand and more and more freshly-inked bills chasing the stuff. Seems only natural the price would eventually resume its skyward trajectory.

As you would expect, all these factors are colluding to hit American motorists rather hard this driving season. According to a new Harris Poll, 51% of Americans say they’ve cut back on other products and/or services in order to cope with higher prices at the pump. We probably didn’t need a poll to tell us that higher prices mean tougher decisions, of course, but it is interesting to see where the family budget is taking the biggest knock.

According to the poll, as cited in a riveting issue of Tire Review, “28% have cut back on dining out while 24% have cut back on groceries, 18% say they have cut back on entertainment, 11% have reduced driving, and 10% have cut back on clothing purchases.”

Of course, if you’re cruising to the local Dean & Deluca in your pimped-out Maybach, you’re probably not too worried about burning a few hundred extra dollars per week or per month on fuel. But if, as is the case for millions of workaday Americans, you’re struggling to keep/find work and living on a restricted budget, every dollar counts.

“Those with lower household income are more impacted,” the article continues, “with 65% of those with a household income of less than $35,000 a year having cut back on products or services because of higher gas prices compared to 38% of those who have household income of $100,000 or more.”

We wonder what this means for the government’s growing fleet of limousines that Eric brought to our attention yesterday. Here’s the chart again, in case you missed it the first time around:

And we wonder, too, what effect this will have on “The Recovery.” Our guess is it will have no effect on it…because there was never a recovery to begin with. It was a sham…a prestidigitation…and hoax, wrapped in a con, wrapped in a scheme. Of course, you wouldn’t know that if you got your information from Whitehouse.gov. An article that appeared almost exactly a year ago (June 17, 2010) on that site reads (try not to laugh and/or cry):

“With tens of thousands of projects funded and millions of Americans on the job today, it’s hard to believe that it’s only been 16 months since President Obama signed the American Recovery and Reinvestment Act. And with so many jobs saved and created already, you might think that the Recovery Act’s greatest impact is behind us. But it’s not.”

Well, at least they were right about the last part: the “American Recovery and Reinvestment Act,” will probably do much more damage before it’s replaced by some other, equally moronic plan by the Feds to “do something.”

Joel Bowman
for The Daily Reckoning

When Gas Prices Lead to Cutbacks originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

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When Gas Prices Lead to Cutbacks

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Despite the recent bearish effort, the stock market's still up 6% for the year. Some sectors and groups, however, are up more than others. Such outperformance begs the question: are these leading industries already over-baked, or is their current leadership an omen of what's to come?

Let's first identify the top-performing exchange-traded funds (ETFs) for the year so far, and tackle the tougher questions after that.

2011's year-to-date ETF winners
Just to clarify, leveraged funds have been removed this list of top performers, since they're more for speculators and less for buy-and-hold investors.

1. B2B Internet HOLDRs (NYSE: BHH): Of all the names that made the cut, this one may also be the most surprising. 'Business-to-business' (a nickname for the corporate-level marketplace of goods, supplies, and services) stocks like Ariba (Nasdaq: ARBA) and Internet Capital Group (Nasdaq: ICGE) – the only two names the fund holds — never really hit their enthusiasm stride again after the 2001/2002 recession. But, something is clearly lighting a fire now.

Note that owning the B2B Internet HOLDRs is essentially a play on Ariba, which makes up 90% of the fund's allocation. That may not be a bad thing though, as the decision to convert its platform from software-based to cloud-based is one stop closer to the company's goal of becoming a “Facebook for business.” With a forward-looking price-to-earnings ratio of 30.3 it's a little heavy in terms of valuation, but if last quarter's 41% increase in revenue is any indication, the company's on the right track.

2. United States Brent Oil Fund (NYSE: BNO): Why has this oil fund performed better than, say the U.S. Oil Fund (NYSE: USO)? That's because BNO is based on Brent futures, which are more popular in Europe and Asia, and more sensitive to the turmoil in the Middle East. USO is based on West Texas Intermediate oil futures, which have actually seen a bit of a delivery glut of late.

Either way, both funds are higher because oil prices have been rising, until recently. And, when oil swings, it tends to swing big. The Brent crude fund is down more than 12% for the month so far, with no help in sight.

3. Rydex S&P MidCap 400 Pure Growth (NYSE: RFG): This is nothing new — this cap/style group has been quietly leading the charge since the March-2009 bottom. Mid-sized companies have found a bit of a sweet spot in a moderate-growth environment. They're more nimble than the slower-moving large caps that aren't finding easy money in any longer, but better-funded and better-shielded than small caps. As long as economic mediocrity reigns, so too should the mid caps.

Despite the recent bearish effort, the stock market's still up 6% for the year. Some sectors and groups, however, are up more than others. Such outperformance begs the question: are these leading industries already over-baked, or is their current leadership an omen of what's to come?

Let's first identify the top-performing exchange-traded funds (ETFs) for the year so far, and tackle the tougher questions after that.

2011's year-to-date ETF winners
Just to clarify, leveraged funds have been removed this list of top performers, since they're more for speculators and less for buy-and-hold investors.

1. B2B Internet HOLDRs (NYSE: BHH): Of all the names that made the cut, this one may also be the most surprising. 'Business-to-business' (a nickname for the corporate-level marketplace of goods, supplies, and services) stocks like Ariba (Nasdaq: ARBA) and Internet Capital Group (Nasdaq: ICGE) – the only two names the fund holds — never really hit their enthusiasm stride again after the 2001/2002 recession. But, something is clearly lighting a fire now.

Note that owning the B2B Internet HOLDRs is essentially a play on Ariba, which makes up 90% of the fund's allocation. That may not be a bad thing though, as the decision to convert its platform from software-based to cloud-based is one stop closer to the company's goal of becoming a “Facebook for business.” With a forward-looking price-to-earnings ratio of 30.3 it's a little heavy in terms of valuation, but if last quarter's 41% increase in revenue is any indication, the company's on the right track.

2. United States Brent Oil Fund (NYSE: BNO): Why has this oil fund performed better than, say the U.S. Oil Fund (NYSE: USO)? That's because BNO is based on Brent futures, which are more popular in Europe and Asia, and more sensitive to the turmoil in the Middle East. USO is based on West Texas Intermediate oil futures, which have actually seen a bit of a delivery glut of late.

Either way, both funds are higher because oil prices have been rising, until recently. And, when oil swings, it tends to swing big. The Brent crude fund is down more than 12% for the month so far, with no help in sight.

3. Rydex S&P MidCap 400 Pure Growth (NYSE: RFG): This is nothing new — this cap/style group has been quietly leading the charge since the March-2009 bottom. Mid-sized companies have found a bit of a sweet spot in a moderate-growth environment. They're more nimble than the slower-moving large caps that aren't finding easy money in any longer, but better-funded and better-shielded than small caps. As long as economic mediocrity reigns, so too should the mid caps.

http://www.minyanville.com/businessmarkets/articles/todd-harrison-stock-market-stocks-insider/5/14/2011/id/34542?utm_campaign=Newsletter&utm_medium=Email+Alert&utm_source=20110514

We couldn’t agree more with this statement from the Minyanville article above:

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An Insider’s Take on the Galleon Verdict

HERE IS YOUR FOOTER

What a wild week it was! Last week, the US bumped off Osama bin Laden. Silver collapsed. Unemployment looked terrible on Thursday…and better on Friday.

Stocks looked like they were in trouble…but then seemed to stabilize by week’s end.

And President Obama suddenly became The Decider.

What do you make of it? Or, a more practical question, if you’ve got money to invest, what do you do with it?

On Friday, gold closed at $1,491 – about 5% below its all-time high. Buy it now? Or commodities, when they too seem to be coming off record highs? Oil was down 10% last week. Buy stocks – when all the evidence shows that they are vulnerable to a big downswing…and will probably produce sub-par returns for many years?

What’s the alternative? Hold cash!

But wait. Who wants to hold dollars (or other paper currencies, for that matter) when inflation rates are rising…and the dollar is currently losing ground at the rate of more than 7% a year (according to MIT’s Billion Prices Project)?

A tough situation for investors. Damned if you do. Damned if you don’t.

Here’s our old friend Merryn Somerset-Webb, editor of MoneyWeek, on the subject:

Why you should hold cash

A long-term property bear told me this week that he was going to buy a flat. Why? He can’t bring himself to keep his money in cash when savings rates are 3%, inflation is 5% and income tax is 40%. But he can’t bring himself to buy much else either: most equities look overvalued; commodities could easily be on the edge of another cyclical peak; and there is only so much gold a man can hold. But his money “has to go somewhere”. And at least property offers some kind of yield.

I can see his points – holding cash in an era of negative real interest rates can feel painful. But what if it’s the least bad option? Dylan Grice of Société Générale points out that while it’s true cash “generally has a zero expected real return”, there is at least a “near-certainty around that expected return”. Mostly if you hold cash you know you won’t make money, but you won’t lose much either.

That’s not usually good enough. Most of the time, risk assets return more than 0%. So it makes sense to be biased towards equities, bonds, commodities, houses and wine instead of cash. But there are also occasions when risk assets are unlikely to return more than zero – times when the risk of losing money in non-cash assets is so high that it makes more sense to aim for a zero return than a real return. Now, says Grice, “might just be one of those times”.

Merryn is probably right. At least, that’s what we concluded at the Family Office too. The Bonner family holds an uncomfortably large amount of its portfolio in cash.

It is uncomfortable because we believe cash will soon be the very worst place to keep your money.

Bill Bonner
for The Daily Reckoning

The Case for Cash: Why a 0% Yield Is Sometimes Your Best Bet originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Bill Bonner, the founder of the the Daily Reckoning released his latest book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas in April 2011.

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The Case for Cash: Why a 0% Yield Is Sometimes Your Best Bet

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

It may sound too good to be true. But, it isn't. I've found a stock that's up more than 600% in the past two years — and it still has room to run.

Best of all, a recent pullback has made shares a lot cheaper. But this may just be a temporary occurrence before the stock rallies once again.

What's caused this company to see such explosive growth in recent years?

The answer lies in a tiny piece of technology — a revolutionary semiconductor chip that's found its way into more than 95% of the world's mobile phones and 25% of all electronic devices.

This company's chip is such a mainstay because it performs well with very low power, making it ideal for battery-operated devices like smartphones or iPads.

According to research firm IDC, smartphone sales are expected to increase by as much as 50% in 2011. Additionally, tablet sales are expected to outpace PC sales, making semiconductor designer Arm Holdings (Nasdaq: ARMH) well-positioned to experience explosive revenue and profit growth in the coming years.

But what makes this company really stand out is its innovative business model. It's the world's leading vendor of semiconductor intellectual property.

This means the company designs and licenses its intellectual property rather than manufacturing or selling chips. This intellectual property is licensed to a worldwide network of leading IT firms, including Apple (Nasdaq: AAPL) and Microsoft (Nasdaq: MSFT), all of whom pay a licensing and royalty fee for every chip or wafer it produces.

Arm's stock has skyrocketed based on this ingenious business model, increasing more than 600% in just two years.

The feds got over the first hurdle. They cut a deal to keep the government in business a while longer.

But that’s not the end of the story. It’s just the beginning.

The New York Times has the story:

Congressional Republicans are vowing that before they will agree to raise the current $14.25 trillion federal debt ceiling – a step that will become necessary in as little as five weeks – President Obama and Senate Democrats will have to agree to far deeper spending cuts for next year and beyond than those contained in the six-month budget deal agreed to late Friday night that cut $38 billion and averted a government shutdown.

Republicans have also signaled that they will again demand fundamental changes in policy on health care, the environment, abortion rights and more, as the price of their support for raising the debt ceiling.

In a letter last week, Treasury Secretary Timothy F. Geithner told Congressional leaders the government would hit the limit no later than May 16. He outlined “extraordinary measures” – essentially moving money among federal accounts – that could buy time until July 8.

Once the limit is reached, the Treasury Department would not be able to borrow as it does routinely to finance federal operations and roll over existing debt; ultimately it would be unable to pay off maturing debt, putting the United States government – the global standard-setter for creditworthiness – into default.

The repercussions in that event would be as much economic as political, rippling from the bond market into the lives of ordinary citizens through higher interest rates and financial uncertainty of the sort that the economy is only now overcoming, more than three years after the onset of the last recession.

Here’s the story. The feds spend more than they “earn” in taxes – almost 100% more. That gives them only two choices…balance the federal budget, by raising taxes and/or making spending cuts…

Or…borrowing money.

Borrowing is a lot easier than taxing or cutting. So, that’s what they’ll do. Forget the grandstanding…forget the agit-prop theatre…

…they either borrow…or they balance the budget.

And they’re not going to balance the budget. Because too many voters expect to get more from government than they have paid for. That was the unstated promise of modern, social welfare governments:

Let us control your lives. We will give you more in benefits than you pay for.

How can you give people more than they pay for? Only by taking the money from someone else. But governments have learned that taxing the rich heavily actually reduces the GDP and the amount of money that can be given to voters. So, they turned to taxing the next generation.

After all, they don’t vote.

Bill Bonner
for The Daily Reckoning

Borrow or Balance: The Feds’ Only Two Choices originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

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Borrow or Balance: The Feds’ Only Two Choices

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.