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Economic Growth Still a Long Way Off

June 3rd, 2011

On Wednesday, the US stock market took its biggest drop of the year. Thursday, the Dow shed another 41 points.

Treasury yields – on 10-year notes – fell below 3%.

US financial stocks took their worst beating in 10 months.

Even gold gave up ground yesterday, with a $10 drop.

What spooked investors?

Maybe they’re catching on. There’s already a ‘double-dip’ in the housing sector. Now analysts are talking about a double-dip in the entire economy. They don’t know it, but the economy has probably already dipped. Properly adjusted for inflation, growth is negative. Further adjusted per capita, it is even worse.

The ISM manufacturing index dipped in May.

“Horror for US economy as data falls off cliff” says a CNBC headline.

CNBC seems to be hiring writers from the London tabloids. The story continues:

“It seems that almost every bit of data about the health of the US economy has disappointed expectations recently,” said Mark Riddell, in a note sent to CNBC on Wednesday.

“US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing.

“And that’s just in the last week and a bit,” said Riddell.

“And right now, the economic data is suggesting that however measly you may think a 3 percent yield is on a 10-year Treasury, the yield should probably be a fair bit lower given what’s going on in the US economy,” said Riddell.

“You’ve also got to wonder at what point the markets for risky assets start noticing, too.”

“QE3 anybody?” asks Riddell.

Riddell is right. Almost all the news is bad. The press talks about a ‘soft patch’ for the recovery. But there is no recovery.

The latest jobs report puts the number of jobs created last month about 140,000 short of expectations. There were 177,000 new jobs created in April – barely enough to keep up with population growth. But in May the number of new jobs, according to ADP, dropped to 38,000.

And here’s the report from AP:

WASHINGTON (AP) – Hiring may be slowing after months of healthy job gains that helped drive economic growth.

The government’s May jobs report, to be released Friday, is expected to cement evidence that the economy has weakened in the face of high energy prices, scant pay raises and a depressed housing market. Analysts have been rushing to scale back their forecasts for job creation.

Persistent economic weakness could also imperil President Barack Obama’s prospects in the 2012 election. Pressure to focus on debt reduction was heightened Thursday by a warning from Moody’s Investors Service. The credit rating agency said it might downgrade the nation’s credit rating if the government failed to make progress in raising the debt limit in coming weeks. Republicans say they will agree to raise the limit only if Democrats back deep spending cuts.

Higher gas prices have left less money for consumers to spend on other purchases, like furniture, appliances and vacations. And average wages aren’t even keeping up with inflation. As a result, consumer spending, which fuels about 70 percent of the economy, is growing sluggishly.

In recent days, economists have sharply reduced their expectations for hiring in May. Nomura Securities now projects a gain of 85,000, down from 175,000 earlier this week. The consulting firm High Frequency Economics cut its estimate to only 50,000, from an earlier target of 200,000.

And don’t talk to us about housing!

Want to know what else sucks?

Associated Press adds a few things:

– The number of people applying for unemployment benefits remains stuck at a level that signals weak job growth.

– Factories received fewer orders for computers, autos, industrial machinery and other goods in April.

– Small businesses are hiring less. May marked a second month of weakness after solid gains in February and March.

And we’ll add some things of our own. Australia, for example. Its economy is shrinking at a 4% annualized rate. And car sales…especially sales of small cars – GM’s sales went down 1% in May, just when people should be preparing for their summer motoring vacations. And China. No one knows what is going on there, but we’re sure something sucks.

Always looking on the bright side, we ask: so where is the light at the end of this tunnel?

Answer: a long way off.

Bill Bonner

for The Daily Reckoning

Economic Growth Still a Long Way Off 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.

Read more here:
Economic Growth Still a Long Way Off




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.

Uncategorized

Arab Spring + European Summer = World Winter of Discontent

May 26th, 2011

The biggest news this past week was not the rape accusation scandal embroiling International Monetary Fund chief, Dominique Strauss-Kahn. It was not President Barack Obama’s much ballyhooed Middle East speech, nor was it the historic floods devastating the Mississippi flood plain.

But these were the stories that preoccupied the US press. Whereas all were certainly newsworthy – and a cut above the usual obsession with the purely titillating and violent – the most trend-significant story of all got scant, or no coverage from the mainstream media.

While the downfall of Strauss-Kahn shattered his hopes to run for the French Presidency, the repercussions would be mainly confined to France. His resignation from the IMF, however, would have limited consequences. A new chief will quickly be found to replace him, and regardless of the Strauss-Kahn rape verdict, the IMF will continue raping countries that are forced into accepting their “aid.”

As for Obama’s speech, it was essentially meaningless; many empty words and more vague, unfulfillable promises that will lead to no action of consequence.

Undoubtedly, the devastation wrought by the violent weather patterns will be felt severely by all those directly affected. The physical and emotional toll on the tens of thousands whose homes, businesses and livelihoods were destroyed is incalculable. Nevertheless, the consequences will impact mostly those directly affected while the spillover implications will only temporarily affect the national, and to a lesser extent, the global economy.

Trend Forecast: Should current weather patterns become more a norm than an anomaly, the socioeconomic consequences will prove long-term, far-reaching and disastrous. Farming, shipping, seafood, food supplies and petroleum refining will be among the foreseeable casualties, accompanied by massive population displacement. But the ensuing chain reaction (inflation, shortages, unemployment, etc.) will claim many other victims, which, at this time, are unquantifiable.

The 800 Pound Gorilla in the Press Room

Strauss-Kahn, Obama’s speech, tornadoes and floods notwithstanding, the biggest news with the greatest implications was the story with the least coverage. If you watched the Sunday night network news (ABC, CBS, NBC, etc.) you wouldn’t have seen it. If you read the front page of The New York Times, America’s self-described “Paper of Record,” it wasn’t there either.

The most prominently placed story with the biggest photo, that was obviously intended to catch the reader’s eye of the flagship Sunday edition, also bore testimony to what the Times considered the news most “fit to print”:

The Gossip Machine, Churning Out Cash Appetite for Dirt
Fuels a Growing, Round-the-Clock Industry

To satisfy the Times’s own insatiable “Appetite for Dirt” it devoted some 4000 words to an imbecilic, inconsequential, lowest common denominator, supermarket tabloid, junk news story on the growth industry of celebrity gossip. Spread across three pages and emphasized by eleven meaningless and superfluous color photos, the Times did what all the mainstream media characteristically do: hawked sleaze and justified it with the reasoning, “This is what the people want.”

Perhaps it was this lust for lust that accounted for the inability of the “Paper of Record” to recognize a megatrend-in-the-making that was already reshaping the global geopolitical landscape. To their credit, however, unlike the networks that ignored the story, the Times at least covered it. According it less than 500 words and relegating it to the Page 12 boondocks, its innocuous headline read: “Despite Ban, Protests Continue Before Spanish Vote.”

Anti-austerity/anti-big bank bailout protests had been sporadically erupting throughout Europe for over a year. But these Spanish demonstrations signaled a major turning point. It was the unrest and discontent in Europe that led us to forecast our “Off With Their Heads” trend that would lead to revolts and topple governments (Trends Journal, Autumn 2010).

But European unrest was overshadowed by the far more violent and widespread Middle East and North Africa uprisings of late 2010 and early 2011. Unlike the Europeans who still believed in the power of their vote, Arabs, with only autocrats, dictators and monarchs in control, had no ballot boxes to divert them. They knew that unless the system changed, nothing would change.

As I had forecast in the Trends Journal and repeated in media worldwide, it would only be a matter of time before Europeans would wake up to the same realization: the system had to change. What distinguished this latest round of Spanish protests from earlier ones in Europe was that very realization; no matter how many votes were dropped into the ballot box, the result would be essentially the same. All the shouting, demands, marches and strikes would accomplish nothing without a responsive government to address them – and this could not be achieved through the current system in which, despite the rhetoric, there was little difference between the major parties.

Trend Forecast: The massive bailouts of Greece and Ireland are already proven failures, and the Portuguese bailout will follow the same path: more debt, higher unemployment, draconian austerity measures imposed upon the people, and a wholesale sell-off of valuable public resources.

Spain, the UK and Italy are next in line to suffer the long-term consequences of the economic “Panic of ‘08” … that has been only temporarily assuaged by the trillions pumped in by the central banks to keep the financial system afloat.

Economic conditions will continue to deteriorate for most European nations. The worse they get, the louder and more heated the protests will become. Entrenched political parties, unwilling to make adequate concessions or yield power, will intensify their crackdown efforts.

The youth-inspired Spanish demonstrations, sit-ins and camp-outs will serve as a template for the equally disenfranchised youth of other countries. In the absence of an economic miracle, divine intervention … or a fulfilled Doomsday Prophesy (in which case all forecasts are off), expect protests to mount throughout the summer of 2011 and continue into 2012 and beyond.

One wild card that might derail the demonstrations, quiet the discontent and unite the people, would be one or several terror strikes in European cities. Considering NATO’s military actions against Libya, revenge attacks are a distinct possibility.

Regards,

Gerald Celente
for The Daily Reckoning

[Editor's Note: The above Trend Alert is available as part of a subscription to The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]

Arab Spring + European Summer = World Winter of Discontent 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.

Read more here:
Arab Spring + European Summer = World Winter of Discontent




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.

Uncategorized

Arab Spring + European Summer = World Winter of Discontent

May 26th, 2011

The biggest news this past week was not the rape accusation scandal embroiling International Monetary Fund chief, Dominique Strauss-Kahn. It was not President Barack Obama’s much ballyhooed Middle East speech, nor was it the historic floods devastating the Mississippi flood plain.

But these were the stories that preoccupied the US press. Whereas all were certainly newsworthy – and a cut above the usual obsession with the purely titillating and violent – the most trend-significant story of all got scant, or no coverage from the mainstream media.

While the downfall of Strauss-Kahn shattered his hopes to run for the French Presidency, the repercussions would be mainly confined to France. His resignation from the IMF, however, would have limited consequences. A new chief will quickly be found to replace him, and regardless of the Strauss-Kahn rape verdict, the IMF will continue raping countries that are forced into accepting their “aid.”

As for Obama’s speech, it was essentially meaningless; many empty words and more vague, unfulfillable promises that will lead to no action of consequence.

Undoubtedly, the devastation wrought by the violent weather patterns will be felt severely by all those directly affected. The physical and emotional toll on the tens of thousands whose homes, businesses and livelihoods were destroyed is incalculable. Nevertheless, the consequences will impact mostly those directly affected while the spillover implications will only temporarily affect the national, and to a lesser extent, the global economy.

Trend Forecast: Should current weather patterns become more a norm than an anomaly, the socioeconomic consequences will prove long-term, far-reaching and disastrous. Farming, shipping, seafood, food supplies and petroleum refining will be among the foreseeable casualties, accompanied by massive population displacement. But the ensuing chain reaction (inflation, shortages, unemployment, etc.) will claim many other victims, which, at this time, are unquantifiable.

The 800 Pound Gorilla in the Press Room

Strauss-Kahn, Obama’s speech, tornadoes and floods notwithstanding, the biggest news with the greatest implications was the story with the least coverage. If you watched the Sunday night network news (ABC, CBS, NBC, etc.) you wouldn’t have seen it. If you read the front page of The New York Times, America’s self-described “Paper of Record,” it wasn’t there either.

The most prominently placed story with the biggest photo, that was obviously intended to catch the reader’s eye of the flagship Sunday edition, also bore testimony to what the Times considered the news most “fit to print”:

The Gossip Machine, Churning Out Cash Appetite for Dirt
Fuels a Growing, Round-the-Clock Industry

To satisfy the Times’s own insatiable “Appetite for Dirt” it devoted some 4000 words to an imbecilic, inconsequential, lowest common denominator, supermarket tabloid, junk news story on the growth industry of celebrity gossip. Spread across three pages and emphasized by eleven meaningless and superfluous color photos, the Times did what all the mainstream media characteristically do: hawked sleaze and justified it with the reasoning, “This is what the people want.”

Perhaps it was this lust for lust that accounted for the inability of the “Paper of Record” to recognize a megatrend-in-the-making that was already reshaping the global geopolitical landscape. To their credit, however, unlike the networks that ignored the story, the Times at least covered it. According it less than 500 words and relegating it to the Page 12 boondocks, its innocuous headline read: “Despite Ban, Protests Continue Before Spanish Vote.”

Anti-austerity/anti-big bank bailout protests had been sporadically erupting throughout Europe for over a year. But these Spanish demonstrations signaled a major turning point. It was the unrest and discontent in Europe that led us to forecast our “Off With Their Heads” trend that would lead to revolts and topple governments (Trends Journal, Autumn 2010).

But European unrest was overshadowed by the far more violent and widespread Middle East and North Africa uprisings of late 2010 and early 2011. Unlike the Europeans who still believed in the power of their vote, Arabs, with only autocrats, dictators and monarchs in control, had no ballot boxes to divert them. They knew that unless the system changed, nothing would change.

As I had forecast in the Trends Journal and repeated in media worldwide, it would only be a matter of time before Europeans would wake up to the same realization: the system had to change. What distinguished this latest round of Spanish protests from earlier ones in Europe was that very realization; no matter how many votes were dropped into the ballot box, the result would be essentially the same. All the shouting, demands, marches and strikes would accomplish nothing without a responsive government to address them – and this could not be achieved through the current system in which, despite the rhetoric, there was little difference between the major parties.

Trend Forecast: The massive bailouts of Greece and Ireland are already proven failures, and the Portuguese bailout will follow the same path: more debt, higher unemployment, draconian austerity measures imposed upon the people, and a wholesale sell-off of valuable public resources.

Spain, the UK and Italy are next in line to suffer the long-term consequences of the economic “Panic of ‘08” … that has been only temporarily assuaged by the trillions pumped in by the central banks to keep the financial system afloat.

Economic conditions will continue to deteriorate for most European nations. The worse they get, the louder and more heated the protests will become. Entrenched political parties, unwilling to make adequate concessions or yield power, will intensify their crackdown efforts.

The youth-inspired Spanish demonstrations, sit-ins and camp-outs will serve as a template for the equally disenfranchised youth of other countries. In the absence of an economic miracle, divine intervention … or a fulfilled Doomsday Prophesy (in which case all forecasts are off), expect protests to mount throughout the summer of 2011 and continue into 2012 and beyond.

One wild card that might derail the demonstrations, quiet the discontent and unite the people, would be one or several terror strikes in European cities. Considering NATO’s military actions against Libya, revenge attacks are a distinct possibility.

Regards,

Gerald Celente
for The Daily Reckoning

[Editor's Note: The above Trend Alert is available as part of a subscription to The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]

Arab Spring + European Summer = World Winter of Discontent 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.

Read more here:
Arab Spring + European Summer = World Winter of Discontent




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.

Uncategorized

From Greek Debt to Gold Money: Wishful Thinking in the World Economy

May 24th, 2011

Global investors rediscovered Greece yesterday, which means that they might soon rediscover gold and silver as well.

The state of Utah is ready!

Headlines about the Greek government’s desperate financial condition buffeted financial markets around the globe yesterday, as investors seemed to acknowledge, en masse, “Yes, this situation in Greece is grim.” The Parthenon may be in ruins, but it is a pristine high-rise compared to the Greek government’s balance sheet.

Your editors here at The Daily Reckoning have been mentioning from time to time that the Greeks were sliding toward an inevitable default…or something that closely resembles a default. As early as 15 months ago and as recently as last Friday, we warned that the Greeks would fail to pay their bills, despite receiving a €110 billion bailout from the European Union and the IMF.

But global investors did not seem too troubled by this grim prospect…until yesterday. Greek stocks slumped to another new 14-year low, while Greek bond yields jumped to another new all-time high. The Greek government’s 10-year bond yields a hefty 17%…in theory.

A little to the north of these modern-day Greek ruins, all the major European markets posted losses. Asian markets also fell, while the Dow Jones Industrial Average dropped 131 points to its lowest level in a month.

But the Greeks don’t deserve all the blame for yesterday’s carnage…

According to the newswires, the Romans were responsible for yesterday’s selloff, not the Greeks. Standard & Poor’s downgraded Italy’s finances from “stable” to “negative.”

“Italy’s current growth prospects are weak,” S&P declared, “and the political commitment for productivity-enhancing reforms appears to be faltering. Potential political gridlock could contribute to fiscal slippage. As a result, we believe Italy’s prospects for reducing its general government debt have diminished.”

The mini-panic that ensued knocked the Italian stock market down about 3%, while shaving about 1% off the value of the euro. Meanwhile, gold and silver regained investor interest, as both metals inched higher.

The precious metals probably deserved a bigger rally yesterday, given the gravity of the unfolding sovereign debt problem/crisis. On the other hand, the recent volatility in the silver market may have undermined its “safe haven” allure for the moment.

But if, as we suspect, the fiscal distress in Greece triggers some sort of crisis in Europe and beyond, the precious metals will regain their luster…and then some.

The state of Utah is ready. While the “Beehive State” may not be famous as a trendsetter, it has made a big splash from time to time. Utah’s Mormon settlers, for example, practiced polygamy for decades. But this “plural wives” craze never really caught on nationally.

Now comes Utah with another counter-cultural idea: “plural currencies.” The Utah state legislature is the first in the country to legalize gold and silver coins as currency. (Let’s call it, “ploygmoney.”) The law also will exempt the sale of the coins from state capital gains taxes.

“Earlier this month,” the Associated Press reports, “Minnesota took a step closer to joining Utah in making gold and silver legal tender… North Carolina, Idaho and at least nine other states also have similar bills drafted.

“Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing,” said Ralph Danker, project director for economics at the Washington, DC-based American Principles in Action, which helped shape Utah’s law. “The dollar should be backed by gold and silver, so we have hard money.”

Ah, yes, but “should be” is not the same thing as “is.” What’s that expression: “If wishes were fishes, the sea would be full”?

We wish the dollar were backed by gold or silver. It isn’t.

Eric Fry
for The Daily Reckoning

From Greek Debt to Gold Money: Wishful Thinking in the World Economy 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.

Read more here:
From Greek Debt to Gold Money: Wishful Thinking in the World Economy




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.

Uncategorized

Soaking the Rich

May 5th, 2011

Dow down 83 points yesterday. Gold down $25.

We’re waiting for a sell-off…either at the end of QE 2…or in anticipation of it. When will it come? We don’t know, but it won’t keep us waiting forever.

Meanwhile, we are seeing more and more rich-bashing in the press.

Most people hate the rich. And why shouldn’t they?

The rich are good at hogging the good things in life. That’s why they’re rich, after all.

They get the fancy digs. The fancy cars. The fancy girlfriends.

You see them enjoying life in business class seats, while you ache in economy. You see them pulling their Mercedes and Audis into their big garages, while you make do with a humble split-level on the wrong side of time. And their wives always look like they just came out of a beauty spa….

Their stocks are going up…while you can’t find a job!

The rich learn how to manipulate the system for their own benefit. That’s the way it always works. Money likes power. Power likes money. Usually, they find a way to work together.

The rich howl about how much in taxes they pay. They whine about ‘soak the rich’ proposals. They kvetch about ‘giveaways’ to the zombies. But, they are probably more in control than they appear.

Take Mark Zuckerberg for example. Please. Here’s a guy who says he would be “cool” if they raised his income taxes. In this refrain, he joins the sanctimonious choir headed by Warren Buffett, Ted Turner, and other do-gooders.

Well, guess what. You know why they don’t mind an increase in the income tax rate? It’s because

1) they are so rich that the marginal utility of money for them is close to zero. They won’t even notice an income tax hike. Money hardly counts when you have as much of it as they have. It is like an extra snowball to an Eskimo. It just doesn’t make any difference.

2) They don’t pay much in income taxes anyway. They tend to have their wealth in stocks. And they make most of their money from stock market gains, which aren’t taxed as regular income; they’re taxed as capital gains.

Here’s Newsweek with the story:

It’s easy for Mark Zuckerberg to say he’s ‘cool’ with raising income-tax rates. Because it won’t affect him.
It drives economist Bruce Bartlett crazy every time he hears another bazillionaire announce he’s in favor of paying higher taxes. Most recently it was Mark Zuckerberg who got Bartlett’s blood boiling when the Facebook founder declared himself “cool” with paying more in federal taxes, joining such tycoons as Bill Gates, Warren Buffett, Ted Turner, and even a stray hedge-fund manager or two.

Bartlett, a former member of the Reagan White House, isn’t against the wealthy paying higher taxes. He’s that rare conservative who thinks higher taxes need to be part of the deficit debate. His beef? It’s a hollow gesture to say the federal government should raise the tax rate on the country’s top wage earners when the likes of Zuckerberg have most of their wealth tied up in stock. Many of the super-rich see virtually all their income as capital gains, and capital gains are taxed at a much lower rate—15 percent—than ordinary income. When Warren Buffett talks about paying a lower tax rate than his secretary, that’s because she sees most of her pay through a paycheck, while the bulk of his compensation comes in the form of capital gains and dividends. In 2006, for instance, Buffett paid 17.7 percent in taxes on the $46 million he booked that year, while his secretary lost 30 percent of her $60,000 salary to the government.

“It’s easy to say ‘Raise taxes’ when you know you’re not going to have to pay those taxes,” Bartlett says. “What I don’t hear is ‘Let’s raise the capital-gains tax.’

Soaking the Rich 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.

Read more here:
Soaking the Rich




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.

Uncategorized

Bigger than Bin Laden – America’s New Public Enemy No.1

May 5th, 2011

From the fans at Citi Field in Flushing to the mobs at the White House gates, “USA, USA,” was the chant heard across the nation. Jubilant Americans celebrated the breaking news that Public Enemy No.1, terrorist mastermind Osama bin Laden was dead.

Ten years have passed since the Twin Towers toppled and the Pentagon was whacked. After two failing wars and billions of dollars spent on the global manhunt to bring in Bin Laden “Dead or Alive,” America has now claimed victory. “This is bigger than the moon landing, this is huge,” exclaimed Fox News’ Geraldo Rivera.

“Justice has been done,” intoned President Barack Obama announcing Bin Laden’s death. He not only called it “a good day for America,” but also declared that “The world is safer. It is a better place because of the death of Osama Bin Laden.”

While Secretary of State Hillary Clinton echoed the sentiment that “justice has been served,” she evidently took issue with the Presidential vision of a “safer” world, warning that terror “won’t stop with the death of Bin Laden, we must redouble our efforts.”

If it’s a “safer” world, why the need to “redouble our efforts”? These were but two of the contradictions coming from the White House in the early hours of the breaking story, and many discrepancies would follow. Some of them would be noted and debated, but totally absent from the 24/7 news coverage, political “high-fives” and patriotic triumphalism was the simple question: Why did Osama Bin Laden, former mujahedin ally of the United States, turn against it to become Public Enemy No.1?

Was it that he and his Al Qaeda fighters suddenly decided to hate America’s “freedom and liberties” as George W. Bush maintained? Or was it remotely possible that the attacks were motivated by US foreign policy – with its unconditional support of Israel and concomitant support of the same Middle East monarchs, autocrats and dictators now being toppled in the wave of revolution?

Also absent from America’s non-stop exultation and self-congratulation, absent from the acres of newsprint and the countless hours of air time, was any discussion of the practical consequences of the death of Bin Laden who, before making it back into the headlines, had been both a fading memory and a non-issue.

Osama Bin Who?

So irrelevant had Bin Laden and his jihad rhetoric become that, in the months preceding his assassination, every one of the uprisings occurring throughout the Middle East and North Africa was secular and in direct opposition to Bin Laden’s militant pan-Islamic vision.

In a sentence: There were no practical consequences whatsoever attending the death of Osama Bin Laden. It would do nothing to:

  • Help America win losing wars in Afghanistan and Iraq.
  • Lower the unemployment rate.
  • Stop the US or European nations from sinking deeper into recessions and depression.
  • Revive failing real estate markets or solve the debt and deficit crises.
  • Lower oil and food prices.
  • Reverse the damage or stop the radioactive fallout from Fukushima.

What Osama’s death did do was boost the President’s sagging poll numbers and deflect public attention from the news that really mattered.

On Wednesday, April 27th, just four days before Bin Laden was killed, a new Public Enemy No.1 held his organization’s first ever press conference. Federal Reserve Chairman Ben Bernanke told the world that the United States would continue its low interest rate polices and, in effect, continue to flood the world with cheap money.

The global equity markets immediately responded to the predictably destructive consequences. Before Bernanke ended the press conference, gold prices shot up $20 an ounce, silver $2, and the dollar fell to a 3 year low against a trade-weighted basket of currencies. Despite the Chairman’s claims to the contrary, the US dollar would continue to devalue and subsequently dollar based commodity prices would soar.

Needing neither a mountain lair nor sequestration behind closed Fed doors, the new Public Enemy No.1, “Osama” Ben Bernanke committed, in broad daylight, an act of financial terrorism that would have far reaching and long lasting implications for the American public. As the value of the dollar went down, the cost of nearly everything would go up…excepting the cost of “risk.”

This meant that financiers could continue to speculate and exploit the equity markets, with the profits going only to the 10 percent of Americans that owned 90 percent of the stocks, bonds and mutual funds. Moreover, the Fed reasoned the cheap dollar would also give a competitive edge to big US exporters. But as exports rose, so did the price of imports, putting further strains on average consumers whose real wages fell ever further behind the pace of inflation.

Bombs Away

What Osama Bin Laden’s death also did was to deflect attention from the US/NATO “humanitarian” mission in Libya, which, just two days earlier, had delivered several humanitarian bombs upon the home of Muammar Qaddafi’s son, killing him and three of his children.

The bungled attempt to assassinate Qaddafi (who had been visiting his son) was condemned by Russia, brought recriminations against NATO from other UN members for overstepping the UN mandate, and called into question the legality of the air strike.  With a groundswell of public sympathy building around the world for Qaddafi’s murdered grandchildren, the very purpose and future of the entire mission was being called into question.

Trend Forecast: With the death of Osama Bin Laden, the restored, rebuilt, new and improved terror bandwagon rolls again…and it will keep rolling until Election Day 2012. Whether a real terror attack happens or not, Barack Obama, as he has done before, will take a page from the G.W. Bush playbook and keep the American public in a state of fear and hysteria.

And should terror strike the US, UK, France or other NATO ally, their governments, media “presstitutes,” pundits, and the public at large will debate and deplore the “cowardly act” and demand “swift justice.” They will blame Bin Laden sympathizers, Al Qaeda cells, Muammar Qaddafi, radical Islamists…but never will they blame themselves. They will refuse to acknowledge that what they called “terror” was nothing more than “revenge”; reprisal for foreign meddling in the domestic affairs of other nations, or retaliation for military invasions launched by the US, UK, France or other NATO ally upon a sovereign nation.

Meanwhile, back in DC, the Chairman of the Fed, Public Enemy No.1, “Osama” Ben Bernanke, will mastermind the destruction of the American dollar, the US economy and the purchasing power of the American people.

As we have been forecasting for years, gold, despite its recent pull back, is on-trend to reach $2000 per ounce (and possibly higher). And while Ben Bernanke claims that inflation is merely “transitory,” considering his penchant for printing trillions of digital dollars not worth the paper it’s not printed on, we see inflation as both entrenched and rising.

Regards,

Gerald Celente
for The Daily Reckoning

[Editor's Note: The above Trend Alert is available as part of a subscription to The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]

Bigger than Bin Laden – America’s New Public Enemy No.1 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.

Read more here:
Bigger than Bin Laden – America’s New Public Enemy No.1




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.

Commodities, Mutual Fund, Real Estate, Uncategorized

Why This Undervalued Financial Stock Could Gain 86%

May 4th, 2011

Why This Undervalued Financial Stock Could Gain 86%

In a Rolling Stone article from April 2010, in a now famous tirade against Wall Street investment banks, journalist Matt Taibbi described Goldman Sachs (NYSE: GS) as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This is one of the more negative descriptions of the industry you're likely to find, but it does illustrate the hostility that people in the press and others still have toward investment banks and the role they played in causing the credit crisis.

The truth is the blame can be spread to a number of participants, be it overzealous home speculators, Freddie Mac and Fannie Mae and a Wall Street that helped fan the housing bubble and subsequent financial crisis. In regard to the investment banks specifically, firms including Lehman Brothers and Bear Stearns paid the ultimate price for their sins and no longer exist.

The remaining firms are seeing much more stringent regulations that should help stave off future disasters. They will also be better off now that a number of archrivals are gone and the survivors have quickly implemented more risk-averse cultures. The pure play winners in the space will likely now include Goldman and Morgan Stanley (NYSE: MS).

Shares of Goldman have more than doubled since the height of the financial crisis in March 2009. This is ahead of the market, which has doubled, but Morgan Stanley, however, continues to lag and is up only 60% since that time. Given the weak stock returns and changes being implemented by new CEO James Gorman, I see potentially big gains for investors going forward.

In March, Fortune magazine profiled Gorman's strategy to return Morgan Stanley to its roots of earning fees on its investment banking and investment management activities. He is also trying to shift focus away from proprietary trading, where traders try to invest and make money on Morgan Stanley's own assets. Proprietary trading can be extremely profitable, but it is just as volatile. When trades go against these firms, they can lose big, as evidenced by a $655 million loss on trades made with Japanese trading partner Mitsubishi UFJ Financial Group Inc. (NYSE: MTU) during the first quarter.

The trading loss has sent Morgan Stanley's stock back toward its lows of the past year and represents an opportunity pick up shares on the cheap. Its investment banking unit remains the most successful in the industry. During the first quarter, Morgan Stanley boasted that it held a “No.1 ranking in global M&A in a robust deal market.”

Its wealth management business also became much stronger during the credit crisis as embattled rival Citigroup (NYSE: C) was forced to sell a 51% stake in its Smith Barney brokerage business to Morgan Stanley to raise capital and survive. Morgan Stanley combined Smith Barney with its own broker business and is now one of the largest brokers in the world.

The combination of a leading investment bank and brokerage business could prove very lucrative for investors going forward. But it's not yet reflected in earnings. Overall, Morgan Stanley is still in recovery mode from the financial crisis and posted a return on equity (ROE) of only 7.8%, well below the 20.4% it reported before the crisis hit. First quarter ROE was only 6.2% off the firm's quarter-end book value of $27 per share.

Uncategorized

Hey Ben, wake up! The problem is your message, not its delivery!

April 29th, 2011

Mike LarsonSo this was it. The week where a Federal Reserve Chairman finally stepped out of his ivory tower and came down to speak to the unwashed masses.

Specifically, the Federal Open Market Committee didn’t just release a post-meeting statement on the economy Wednesday. Ben Bernanke later trotted out in front of the microphone, made some comments on the economy, and then took questions from the press for about an hour.

How’d it go? Well, he didn’t put his foot in his mouth or trip walking up to the podium. But he did once again show that he’s completely out to lunch on inflation, the dollar, and his role in destroying our standard of living.

Look, there is no doubt in my mind — zero — that the Fed’s interest rate and easy money policies are a huge reason the dollar is cratering and commodities are soaring. Yet Bernanke kept trying to blame things like geopolitics and emerging market growth for those market developments. And while he said that monetary policies aimed at controlling inflation are good for a country’s currency, he refused to adopt any such policies!

If there’s one thing Bernanke DID get right, it’s this: When a Fox Business reporter asked about S&P’s recent downgrade of America’s sovereign credit outlook, he replied:

“America has a very serious long-term fiscal problem … the fiscal deficit is simply not sustainable, and if it’s not addressed, it will have significant consequences for economic growth and our financial stability.”

But again, by essentially monetizing the U.S. debt and buying 85 percent of the Treasuries the government is issuing, the Fed is enabling the government to continue to run those very same deficits!

Can you believe this guy?

Saying Something Louder, and More
Often, Doesn’t Make It True!

Openness is great. I’m all for transparency. My problem with the Fed’s approach is simple:

Bernanke's message is doing nothing for Main Street.

Bernanke’s message is doing nothing for Main Street.

Bernanke thinks it’s the DELIVERY of his message that’s at fault. He thinks if he can just give more speeches, release more statements, and be more open by taking questions from the press four times a year, then people will understand the Fed really does know better than them. That, gosh, Bernanke really is on their side.

But what the Fed has been doing is NOT helping the average American. It’s helping hedge funds, speculators, and investors … at the expense of people who don’t own stocks and are just trying to keep food on their tables or gas in their tanks.

Just consider: Since last August, when Bernanke laid out the case for QE2, crude oil prices have risen 59 percent. Retail gasoline has surged from $2.69 per gallon to $3.88 per gallon. Cattle has gained 18 percent in price, wheat has rallied 26 percent, soybeans have jumped 40 percent, and corn has skyrocketed 92 percent.

On Wednesday gold hit the highest level in history — $1,530 an ounce — while silver prices have exploded 172 percent. Meanwhile, the broad Dollar Index has collapsed to its lowest level in 32 months, and its lowest level in history against sound-money currencies like the Singapore dollar and Australian dollar.

Inflation expectations? The ones that are supposedly tame, well-anchored, “well stabilized” or whatever the Fed wants to call them?

Well, Americans polled by the University of Michigan now expect inflation to run at a 4.6 percent rate over the next year. That’s up from 2.7 percent last August. The broader Conference Board survey for April showed inflation expectations for the next year surging even higher — to 6.3 percent from 5 percent.

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Lastly, what about those struggling homeowners and mortgage borrowers? The ones who the trillions of dollars of QE2 — as well as FHASecure, HAMP, HOPE NOW, etc. — were supposed to help? Or bondholders, who were supposed to see higher bond prices and lower interest rates?

They’ve gotten two things from QE2 — jack and squat!

The evidence? Long-term Treasury futures have dropped 11 percent in price, while 30-year mortgage rates have climbed to 4.8 percent from 4.36 percent since last August.

New home sales, existing home sales, and construction activity have essentially gone nowhere for the past couple of years, while the 20-city Case-Shiller housing price index just fell to 139.27. That’s a measly 1/100th of a point away from the February 2009 low, and down more than 6 percent since Bernanke’s hard sell for QE2 last August.

If This Is Success,
I’d Hate to See Failure!

The Fed's monetary policy is driving up the cost of almost everything you have to buy.

The Fed’s monetary policy is driving up the cost of almost everything you have to buy.

The Fed seems to think we out here in real America just don’t get it. That’s why Bernanke is being more open on the communications front.

But the simple reality is that Bernanke is destroying the value of your dollars. He’s helping drive up your cost of living. He’s forcing seniors to take their hard-earned dollars out of safe investments like CDs and plow them into things like junk bonds.

Meanwhile, he has driven interest rates UP, not down. And his policies have been a total, utter, dismal failure when it comes to re-energizing the housing market.

Or in simple terms, if this shows that QE2 has been a “success” like some economists say, I’d hate to see failure!

You have only one choice in this environment, folks. You have to take things into your own hands as long as Bernanke and the rest of the Fed is going to get things dead wrong on the monetary policy front.

Consider buying gold and shares of companies with higher yields than Treasuries and a large percentage of overseas revenue. Buy currencies, stocks, and short-term bonds of countries with better economic growth and monetary policy.

And please, if you haven’t watched it yet, check out the American Apocalypse presentation we’ve just put together. It goes into much more detail about the issues I’ve presented here — and gives you concrete, actionable advice on what to do to protect yourself and profit in this environment. Click here for more.

Until next time,

Mike

Read more here:
Hey Ben, wake up! The problem is your message, not its delivery!

Commodities, ETF, Mutual Fund, Uncategorized

Staying On the Right Side of the Inflation Trade

April 28th, 2011

“Stocks rose to another high for the year [yesterday],” according to the Associated Press, “after Federal Reserve Chairman Ben Bernanke said central bank officials expect the economy to continue recovering.” It’s true stocks soared yesterday, but we’re not so sure the “recovering economy” was the primary cause.

No, we’re going to stick with our working hypothesis: the stock market is soaring because the dollar is tanking. The more the dollar tanks, the more the stock market soars. This inverse correlation makes perfect sense. If you are holding a rapidly depreciating asset, why not exchange it for an appreciating asset…or at least an asset that offers the potential to appreciate?

This dynamic – falling dollar, rising stocks – is just another way of saying the stock market, in aggregate, has become little more than an “inflation trade.” This particular inflation trade may contain a variety of stock symbols and may attract continuous, hyperactive blather on financial news networks, but it is still just an inflation trade.

Believing that a dollar bill will buy less tomorrow, US investors will use their dollars to buy almost anything today, including richly valued stocks. US stocks, as an inflation trade, have performed adequately so far in 2011. The S&P 500’s 7.5% year-to-date gain roughly equals the Dollar Index’s year-to-date loss.

Over longer time frames, however, the US stock market has delivered a much less effective hedge against the falling dollar than, say, gold or silver. During the last 10 years, for example, the S&P 500 produced a cumulative total return of 33.7%…when measured in US dollars. When measured in Australian dollars, however, this gain flips to a 35% loss!

Total Return of S&P 500 Over the Last 10 Years in US and Aussie Dollars

In fact, in terms of every major world currency, as well as numerous minor world currencies, the S&P 500 has been a losing bet for the last decade. In terms of the precious metals, the S&P 500 has been a very large losing bet.

Total Return of S&P 500 Over the Last 10 Years in Currencies and Precious Metals

By simply exchanging dollars in April 2001 for any of the currencies or precious metals in the chart above, a dollar-phobic investor would have received a greater total return than by buying US stocks. Bear in mind that this chart does not include in its calculation the interest an investor could have earned in any of these foreign currencies. For perspective, the Aberdeen Asia-Pacific Income Fund (a closed end fund that holds Australian and Asian debt securities) has delivered a whopping total return of 289%!

So you see, inflation isn’t all bad, as long as you’re on the right side of the trade. The US dollar, as a store of value, has been a complete disaster for many, many years. The critical question for investors is whether this trend will continue…or reverse.

We cannot see the future, of course, but we can hear what Fed Chairman Ben Bernanke says about his future intentions. And during yesterday’s press conference we heard the chairman promise to continue pursuing inflationary policies, while also dismissing the inflation he has already created as the “transitory” result of “robust global demand.” In other words, the inflation problem isn’t a problem.

The longer he spoke, the more the financial markets seemed to realize he wasn’t kidding about this inflation stuff. The US stock market – remember, it’s an inflation trade – rebounded from early morning lows to end the day at a new three-year high. Meanwhile, the classic inflation trades, gold and silver, rocketed from early morning losses to post huge gains. Silver jumped $2.36 an ounce to a new 31-year high of $47.84. (As we write, silver is flirting with $50 an ounce). Gold gained $21 an ounce to a new all-time high of $1527.35.

And what about the almighty dollar?

Bernanke declared, “the Federal Reserve believes that a strong and stable dollar is both in American interests and in the interests of the global economy.” The foreign exchange markets seemed to choke on their laughter.

The dollar stumbled to a new two-and-a-half year low…and continues stumbling today. By contrast, the Australian dollar, Canadian dollar, Singapore dollar and Swiss franc are all hitting new all-time highs!

At some point, perhaps very soon, the “overbought” gold and silver markets will conspire with the “oversold” Dollar Index to embark on ferocious counter-trend moves. We should be prepared for such an eventuality, but not perplexed by it. The ending of QE2 in June would provide a reasonable excuse for such countertrend moves. But if/as/when the dollar rallies, don’t forget to hit the bid.

The greenback remains a sick puppy… and inflation is its life threatening disease.

Eric Fry
for The Daily Reckoning

Staying On the Right Side of the Inflation Trade originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Staying On the Right Side of the Inflation Trade




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.

Uncategorized

The Unthinkable Removal of Quantitative Easing

April 27th, 2011

“The purpose of Newspeak,” George Orwell, wrote in his novel 1984, “was not only to provide a medium of expression for the worldview and mental habits proper to the devotees of Ingsoc [Orwell’s name for the ruling regime in 1984], but to make all other modes of thought impossible.”

The columnist William Pfaff, with whom we often agree, used Orwell’s quote yesterday to describe how the United States government has come to inextricably support the bases at Guantanamo, which he likens to Gulags of Stalinist Russia – only worse because Gulag sentences, at least, had an end date.

While closing the base seems to have become politically impossible, “something still might usefully be said about this situation,” Pfaff writes with perceptively dying hope. It’s “obviously a phenomenon of totalitarian character, emulating, no doubt wittingly, the destruction of judicial constraint in the Nazi system by means of arbitrary imprisonment in concentration camps and by methods generalized in Gestapo and SS practice, and in Stalinist Russia by its secret police and forced labor camps.”

If you haven’t read the piece, we recommend you do so here: Locked In.

As frightening as Pfaff’s perception of Guantanamo is, we couldn’t help but think of Orwell this morning when listening to NPR’s coverage of Office for National Statistics’ release of British gross domestic product (GDP) this morning.

Fact is, GDP in Great Britain turned positive again in the first quarter of 2011 – just barely. The statisticians in London reckon the UK economy grew 0.5%, making up for the 0.5% loss in Q4 2010.

The news was interpreted as a disaster by an analyst from the City talking to Morning Edition. The “austerity measures” put in place by the Cameron government will continue to “suppress” GDP, unless the central bank opens the monetary spigots to counter the closing of the fiscal ones.

Since quantitative easing (QE) in Britain has amounted to a quaint $121 billion since the panic of 2008 – out of nearly $5 trillion pursued by the US, European Union and Japan – the commentator presumes the English are doomed.

When asked to speculate on the effect of “austerity measures” proposed by the US president for the US economy, the commentator couldn’t fathom it. What might actually happen if the Fed pulled back on QE and Congress actually proposed to get spending in line?

Shiver me timbers. All economic activity is derived from government spending or monetary easing. To think of the economy in any other terms has become politically “irresponsible”… even “kookie”… these days. One can’t even imagine it.

The analogy between foreign policy and monetary policy would be a hoot, if the societal trend weren’t so ominous.

“Guantanamo has been a factor in what it is not unreasonable to call the totalitarianization of American political culture,” Pfaff asserts in his piece, “taking place through the effective prohibition (or demonization) of certain political stances, or of the advocacy of certain political positions, deemed ‘unpatriotic’ and therefore unacceptable in the political discourse of the nation – including, in some cases, in congressional discourse and debate.”

As much as it is heretical to disagree with foreign policy made behind closed doors by unelected officials, so is it equally impolite to question the wisdom of monetary policy made behind closed doors by another group of men in Washington.

We presume the press conferences now scheduled by the Federal Reserve, the first of which we’ll be witnessing this afternoon, are designed to open the closed doors.

But still we have our suspicions.

“What are the odds?” for example, we couldn’t help but thinking as we put pen to paper this morning “that on the eve of Ben Bernanke’s first regularly scheduled press conference the stock market has reached multiyear highs?”

The Dow and the S&P are now at levels last seen in June 2008. The Nasdaq, on a tear, hasn’t seen territory like this since January 2001.

Bernanke couldn’t ask for anything better. Why, we can just imagine the setting for this press conference.

Ben Bernanke - Mission Accomplished
“Yeah, baby, the wealth effect!”: Shock and awe econostyle.

“Stock prices rose and long-term interest rates fell,” Bernanke wrote in his Op-Ed in  the day after the Federal Reserve formally launched “QE2” last November, “when investors began to anticipate” a new round of easy money. Mission accomplished.

Addison Wiggin
for The Daily Reckoning

The Unthinkable Removal of Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
The Unthinkable Removal of Quantitative Easing




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.

Uncategorized

Dependent on Fed Spending and the New Money System

April 27th, 2011

Another milestone on the road to Hell!

Here’s the report from The Fiscal Times:

For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. The combination of more cash from various programs, called transfer payments, and lower taxes has been a double-barreled boost to consumers’ buying power, while also blowing a hole in the deficit. The 1930s offer a cautionary tale: The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.

Yes, dear reader…now we will give you a quote:

“Those who count on the feds for their daily bread will soon go hungry.”

Who said that?

We did!

Yesterday, we saw that the feds’ QE2 program was a failure. Just like QE1. And TALF. And TARP. Worldwide, the authorities committed about $20 trillion to fight the correction. And what has it bought? It bailed out Wall Street. It made more millionaires. It drove up stock prices – to a new post-crisis record yesterday. But it didn’t really lead to a genuine recovery or a real increase the nation’s wealth.

And we’ve got news for the “post crisis” folks. This crisis is still going on. Now, we discover that not only is there no real recovery…the phony recovery is so distorting the political/economic picture that no real recovery is even possible.

Seventy-nine percent of household income growth since 2007 has come from government transfer payments. People earn less real money. They have less real money to spend. Their major assets – their houses – are going down in value.

And now they depend on the feds for more than half their income growth. Who’s going to vote for less government spending now?

In all of history, there are very few examples where centralized economic planning has produced even plausibly positive results. They can mess up an economy; there’s plenty of evidence of that. All their meddling, controlling, twisting – from Diocletian to Robespierre to Lenin to Nixon – every market regulation is a curse…every financial lifeline has a hangman’s noose on the end of it.

The only counter examples we can think of are those on the Pharaonic model…where wise Pharaoh stored up grain during the fat years and released it to the people when times got tough.

How often did that happen? The only example we have is from the Old Testament. Is it fact? Or fiction?

A wise government today could imitate Pharaoh. But none has. Instead of storing up grain for the lean years, governments run budget deficits year in and year out…through good times and bad times. Then, when the pickins are slim, they run even bigger deficits to “stimulate” a recovery.

This pattern has been in place…almost universally and with few exceptions…since the new money system was put in place in 1971. You remember that fateful day? When Richard Nixon interrupted Bonanza to tell the world he was doing two impossibly stupid things at once – imposing wage/price controls…and taking gold out of the international monetary system.

We are still suffering the consequences…still lumbering, stumbling, clumsily padding our way to the final act.

And now look at Pharaoh. The masses depend on him. And he’s handing out bread. But wait…it’s phony, ersatz grain. No kidding. Yes, the feds print up money…as if it were real. They give it to the banking system, claiming that it “stimulates” the economy. Then, the banks give it back to the feds…so they can distribute it to the masses. Of course, anyone could see right through it. Everyone knows it is fraudulent.

And so, the price of gold goes up…

The insider hustlers game the system. Did you read that account of the Wall Street wives who started a company just to borrow money from the feds? Everyone in the press is bad-mouthing poor Christie and Susan. The two wives put up $15 million. They borrowed $220 million from the government giveaway program, TALF. They used the money to gamble on debt…just like the government wanted. And what if their speculations went bad? No problem, the feds took all the risk!

Well, more power to Christie and Susan. The feds wanted people to spend…to speculate…to invest. Well, Christie and Susan rose to the challenge. Besides, they’re pretty.

Honestly, if Ben Bernanke looked like Julia Roberts, maybe we would have no problem with US central bank policy. We’d go happily to Hell…along with everyone else. That’s how shallow we are! But he doesn’t look like Julia Roberts. Not even close.. So, we harp, carp, and kvetch….

And what we’re complaining about today is the way the middle classes have been bamboozled by the feds, suborned by phony money…and ruined by a rigged economy.

Haven’t they benefited from all those government payments? Yes, like a man benefits from a hanging! Keep reading…

Double Whammy from Flimmy Flammy

The combination of high food prices…and a high cost of gasoline…is hitting the middle classes hard. Whence cometh these high prices? Why, from the feds of course. Why would the feds want to hurt the middle classes? Don’t ask silly questions, dear reader. Here’s the AP report:

With gas prices now standing at about $3.90 a gallon, energy costs have now passed 6 percent of spending – a level that …is a “tipping point” for consumers.

Of the six US recessions since 1970, all but the “9-11 year 2001 recession” have been linked to – [if] not triggered by – energy prices that crossed the 6 percent of personal consumption expenditures, he said. (During the shallow 2001 recession, energy prices had risen to about 5 percent of spending, which is higher than the long-term 4 percent share.)

What may make matters worse this time around, is there has been a steep increase in food prices that occurred as well. In other recent recessions food costs were benign, at between 7.5 percent and 7.8 percent of spending.

This year food prices have climbed 6.5 percent since the beginning of early January, according to Consumer Growth Partners.

Meanwhile, the poor middles classes watch as their most important asset gets marked down. Bloomberg is on the case:

April 26 (Bloomberg) – Residential real-estate prices dropped in the 12 months to February by the most in more than a year, putting the market on the verge of eclipsing the nadir reached during the US recession.

The S&P/Case-Shiller index of property values in 20 cities fell 3.3 percent from February 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 139.27, the gauge was just shy of the six-year low of 139.26 in April 2009, two months before the economic slump ended.

Values will probably keep falling as foreclosures swell the supply of unsold homes…

Regards,

Bill Bonner
for The Daily Reckoning

Dependent on Fed Spending and the New Money System originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Dependent on Fed Spending and the New Money System




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.

Uncategorized

A Financial Atom Bomb

April 25th, 2011

Martin D. Weiss, Ph.D.

Nearly a year ago, I publicly challenged S&P, Moody’s and Fitch to downgrade the long-term debt of the United States government — to help protect investors and prod Washington to fix its finances. (Go to this page for the challenge, and here for the press release.)

In a moment, I’ll show you why their failure to respond is ripping off investors, how it’s exposing millions to a financial atom bomb, and what you can do for immediate fallout protection.

But first, this question: Did S&P finally respond to my challenge last week when it “downgraded” U.S. debt to “negative”?

To the casual observer, that might appear to be the case. But in reality, their action — much like recent steps by Washington to “fix” the deficit — was little more than smoke and mirrors.

Here are the facts:

S&P did NOT change, even by one tiny notch, its “AAA” rating for U.S. government debt. It merely changed its future “outlook” for the rating.

S&P did NOT have the courage to do what’s right for investors and for the country today. It merely said it might do something a couple of years from now.

Worst of all, S&P has done nothing to change its practices that have caused so much pain for investors in recent years. As before, it’s typically quick to upgrade its best-paying clients, but often delays meaningful downgrades until it’s far too late.

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It’s the Greatest Financial Scandal of Our
Time, and the U.S. Government’s Triple-A
Rating Is the Most Scandalous of All.

In proportion to the size of its economy, the U.S. government has bigger deficits, more debt, plus bigger future liabilities to Medicare and Social Security than many countries receiving far lower ratings from S&P, Moody’s and Fitch.

Compared to lower rated countries, the U.S. also has a greater reliance on foreign financing, a weaker currency, and far smaller international reserves.

The U.S. government is exposed to trillions of dollars in contingent liabilities from its intervention on behalf of financial institutions during the 2008-2009 debt crisis.

The U.S. Federal Reserve, as part of its response to the financial crisis, may be exposed to significant credit risk.

The U.S. economy is heavily indebted at all levels, despite recent deleveraging.

U.S. states and municipalities are experiencing severe economic distress and may require intervention from the federal government.

The U.S government’s finances could be adversely impacted by a rise in interest rates.

The U.S. dollar may not continue to enjoy reserve currency status and may continue to decline.

Improper payments by the federal government continue to increase despite the Improper Payments Information Act of 2002.

The U.S. government had failed its official audit by the Government Accountability Office (GAO) for 14 years in a row, with 31 material weaknesses found in 24 government departments and agencies.

This is no secret. Nor am I citing original facts.

They are the same facts that have been written about extensively by Jim Grant, editor of the Interest Rate Observer, brought to light by the U.S. Government Accountability Office and widely publicized by its former chief, David Walker.

They are similar to the points made in recent warnings by the International Monetary Fund, the Congressional Budget Office, the European Central Bank, the president’s deficit commission, and even the Big Three Rating agencies themselves.

And yet, the U.S. government STILL gets a AAA rating from all three?

And all the while, other countries, which do NOT have these problems, get far lower grades?

This Doesn’t Even Pass a Simple Smell Test.
It Reeks of Egregious Conflicts of Interest.

We know that the Big Three rating agencies failed to warn investors about giant insurers that went bankrupt in the early 1990s.

We also know how they bungled their ratings of Enron in 2001 and gave stellar grades to big Wall Street firms that failed in 2008.

So it’s fair to suspect that similar problems afflict their sovereign debt ratings. Indeed …

If the Big Three rating agencies downgraded the debt of the United States government, they would come under tremendous pressure to ALSO downgrade big borrowers that count on the U.S. government for sponsorship, financing or bailouts.

But those big borrowers PAY the rating agencies huge yearly fees for their ratings and would be less willing — or even less able — to continue those payments if their debts are downgraded.

Why You’re Getting Ripped Off (and Worse!)

If you think this fundamental dishonesty doesn’t impact you directly, think again.

Even if there are no further consequences, you’ve already paid a high price for it:

The rating agencies are understating the risk of your investments, and consequently, those investments are paying your LESS yield than you deserve to compensate you for the real risk you’re taking.

This is true not only for U.S. Treasury securities, but also for virtually every bond ever issued.

If the U.S. Treasury itself were graded at its appropriate level, thousands of other securities, traditionally assumed to be of lower quality than Treasuries, would need to be seriously reviewed for parallel downgrades. But until that review takes place, many get away with paying you less interest than you deserve.

You’re also not getting a fair interest rate on bank CDs or insurance policies.

Nor is this impact limited to fixed instruments. If bonds are downgraded and must pay higher yields, nearly every other investment in the world would be pressured to do the same.

That’s why this is a financial atom bomb. And that’s why it’s shameless. If the rating agencies had rated U.S. debt honestly years ago, we might not be in this predicament.

What’s worse is that …

  • Treasury note and bond investors are exposed to far greater risks than they’re being told about. Even assuming the U.S. government never defaults, you can lose a lot of money from declining market values of notes and bonds, from the declining purchasing power of your dollars, or both …
  • Citizens and residents of the U.S. are exposed to far greater risk of rising taxes and slashed benefits payments than is implied in the triple-A ratings, and, alas …
  • Our entire country and way of life is in far greater danger than Washington or Wall Street would have you believe.

The outlook: With each day that passes, investors in the U.S. and overseas will gain greater clarity of vision, smell the dangers, and begin to recognize that the emperor has no clothes.

They will respond by taking action, driving U.S. bond prices and the U.S. dollar sharply lower.

You need to take protective steps AHEAD of time.

First and foremost, sell any Treasury notes and bonds that you may still be holding — either directly or via a fund. Bonds (defined as 10 to 30 years) are the riskiest. Notes (one to 10 years) are also subject to declines, especially in the longer maturities. And bills (under one year) are the least risky.

Second, for protection against falling bond prices, Weiss Research’s Mike Larson recommends inverse Treasury ETFs like TBT — a fund that’s designed to go up 2% when Treasury bond prices fall by 1%.

Third, for protection against a falling dollar, consider ETFs that buy exclusively the strongest foreign currencies like the Australian dollar and Brazilian ETF.

Fourth, to hedge against inflation, gold ETFs like GLD are among the simplest solutions.

And above all, stay SAFE!

Good luck and God bless!

Martin

Read more here:
A Financial Atom Bomb

Commodities, ETF, Mutual Fund, Uncategorized

Dead Ahead: America’s Ultimate Budget Battle

April 11th, 2011

Martin D. Weiss, Ph.D.

If you think last week’s battle of the budget was brutal, wait till you see what’s coming next!

Within just a few weeks, the U.S. government will hit its debt ceiling of $14.29 trillion — and if Congress fails to raise it, the consequences will be far-reaching:

The Treasury Department will be denied legal authority to borrow more money. It will stop payments on bond principal and interest. It will discontinue Social Security checks, cease paying out Medicare benefits, and even cut back veterans benefits — a far bigger blow to millions of Americans than virtually any government shutdown.

In fact, these consequences are so apocalyptic that every time the U.S. government has hit its legal debt ceiling in the past, no one dared to draw a line in the sand. Congress has always voted to raise it.

Will this time be any different?

At first, yes. Fiscal conservatives are now ready to fully deploy the leverage that the debt ceiling gives them. Before they vote to raise it, they’re going to put a big fight and draw some blood.

But no one — not even the staunchest fiscal hawk — is ready for the ultimate budget battle.

That’s the day when Washington finally meets its maker: the global financial markets.

That’s when …

  • The Bank of China decides to re-shuffle its massive reserves, greatly reducing its allocation to U.S. bonds …
  • The Japanese government issues new guidelines to its large insurance companies and pension funds to cease all further purchases of Treasury bonds …
  • Institutional investors in Europe, emerging markets, and even the U.S. dump their bonds with both hands, sell dollars, and rush into every other asset imaginable.

On that day, our fate will no longer be decided by votes on Capitol Hill or last-minute deals in the Oval Office. It will be decided solely on the streets of the world, based entirely on the zeal of investors to cut their losses.

When? No one can pinpoint a date. But there certainly has been no shortage of warnings. For example …

The International Monetary Fund (IMF) warns that, just to regain balance and stabilize the rapid deterioration in the budget, the U.S. government would have to raise all taxes, while cutting all transfers (such as Social Security and Medicare payments) immediately — and permanently — by 35%. Moreover, the IMF warns that any delays in doing so could ultimately make future fixes far more costly.

The Stanford Institute for Economic Policy Research (SIEPR), under the direction of former U.S. Comptroller General David Walker, warns that:

America’s fiscal condition is now actually WORSE than that of two PIIGS countries already known to be extremely vulnerable to this crisis — Spain and Italy!

Precisely when will America have to face the music? No one knows. But Walker and SIEPR stress that …

“The recent U.S. housing market collapse and ensuing financial crisis reminds us that crises usually are both unanticipated and extremely costly.”

The bottom line: The longer our politicians delay action, the greater the ultimate damage to our country.

That’s why nearly one year ago, I stepped up my own warnings, issuing a public challenge to S&P, Moody’s, and Fitch to downgrade America’s long-term debt.

Some experts and readers reacted with alarm and even anger. “Why in the world would you ever want anyone to downgrade our country’s debt?” they asked.

The answer is in the full text of our press release to the major wire services and financial media …

Weiss Ratings Challenges S&P, Moody’s
and Fitch to Downgrade Long-Term U.S. Debt
Downgrade Would Help Protect Investors
and Prod Washington to Fix Its Finances

Weiss Ratings Release

JUPITER, FL (Marketwire – May 10, 2010). Weiss Ratings, an independent rating agency covering the nation’s financial institutions, issued a challenge today to Standard & Poor’s, Moody’s and Fitch: To downgrade the long-term sovereign debt of the United States in order to help protect investors and prod Washington to fix its finances.

“The U.S. government’s triple-A rating is an anachronism,” said Martin D. Weiss, chairman of Weiss Ratings. “Given the rapid deterioration in our nation’s finances and the spreading threat to sovereign debt overseas, the downgrade is long overdue.

“By reaffirming the government’s triple-A rating,” Weiss continued, “the three leading rating agencies help entice savers and investors to pour trillions more into a potential debt trap, or, at best, to be severely underpaid for the actual risks they are taking. The rating agencies give policymakers a green light to perpetuate their fiscal follies, further degrading our government’s ability to meet future obligations. And they help create a false sense of security overall. Recognizing and confronting our nation’s financial troubles with honesty is the necessary first step toward solving them.”

Weiss presents four case studies in which the rating agencies failed to downgrade large institutions in the past: (1) Major life and health insurance company failures of the early 1990s, (2) the Enron failure of 2001, (3) the mortgage meltdown of 2007-2008, and (4) the failure of Bear Stearns, Lehman Brothers and others in the recent debt crisis.

“In each case,” Weiss points out, “timely downgrades would have been beneficial to investors, to the financial markets and even to the issuers themselves. But in each case, the rating agencies’ procrastination had catastrophic consequences. We can’t afford to let the same happen to our nation’s credit.”

Among the many factors Weiss cites that mandate an immediate downgrade of long-term U.S. debt are:

  • U.S. debt and deficit ratios that are equivalent — or even worse than — those of Spain, Portugal and Greece, countries that have already been downgraded by the rating agencies.
  • The growing importance of bailouts for sovereign governments, coupled to the inability of the United States to acquire similar emergency financing for itself.
  • America’s predicament as the world’s largest debtor nation.
  • The U.S. government’s failure to pass its official audit by the Government Accountability Office (GAO) for 13 years in a row, with 38 material weaknesses found in 24 government departments and agencies.

“The case for a U.S. debt downgrade is overwhelming,” concludes Weiss in his open letter to the rating agencies. “And I challenge you to take the appropriate action. Any failure to do so can only enhance the risk of another financial meltdown for which no bailout would be possible.”

(See below for balance of Marketwire text.)

Falling on Deaf Ears

President Obama’s own deficit commission has also issued warnings, which are equally strident.

We hear loud warnings from our creditors in China, the Middle East, and emerging markets.

And most of all, we hear them from the marketplace.

Just this week, for example, global investors voted their extreme displeasure with Washington by dumping dollars.

They sent the greenback into new, multi-year lows against the Australian dollar, the Canadian dollar, and the New Zealand dollar.

The drove the ENTIRE U.S. Dollar Index — representing the dollar’s value against ALL of the world’s six major currencies — down to a meager five points away from its lowest level in history!

Why? Because they see the mess Washington is in. They know how impossible it has become for our leaders to tame our debt monster. They remember how the same thing happened to Greece, Ireland, and now Portugal. Plus, they remember how much money they lost in those disasters!

Meanwhile, global investors fled to virtually every investment that typically surges as the dollar falls. That’s why …

  • Gold is exploding higher, quickly closing in on the $1,500-per-ounce level.
  • Silver has busted through the $40 level — doubling in the past seven months alone.
  • Crude oil has jumped by more than $10 per barrel in just over a week. On Friday, it surged to more than $112 in the U.S.; $126 in Europe.
  • And the dollar collapse is even inflating U.S. stock prices — especially those tied to resources or benefiting from booming currencies and economies overseas.

Yet despite all of these warnings — from the experts and from the markets — Congress and the White House continue to fiddle.

Good luck and God bless!

Martin

Balance of Marketwire text is below …

Weiss Ratings is the nation’s only provider of independent ratings on the nation’s 900 life and annuity insurers, 2,700 property and casualty insurers, as well as 600 health insurers and HMOs. It is among the nation’s leading providers of independent ratings on 8,000 banks and S&Ls. Plus, it also distributes independent ratings on the shares of thousands of publicly traded companies, mutual funds, closed-end funds and ETFs.

By adhering to its independent business model, Weiss outperformed Standard and Poor’s, Moody’s, A.M. Best and Duff & Phelps (now Fitch) in warning of future life and health insurance company failures according to a 1994 study by the U.S. Government Accountability Office (GAO), while also outperforming its competitors in identifying the safest insurers, according to its follow-up study using the GAO’s research methodology.

Similarly, Weiss was the only one to identify, in advance, nearly all major banks that failed or required a federal bailout in the 2008-2009 debt crisis. (See Weiss warnings of financial failures in debt crisis of 2008-2009.)

Thanks to its strong track record and independence, The New York Times wrote that Weiss was “the first to see the dangers and say so unambiguously”; Barron’s wrote that Weiss is “the leader in identifying vulnerable companies;” and Esquire concluded that Weiss Ratings is “the one company [that]… provides financial grades free of any conflicts of interest.”

Read more here:
Dead Ahead: America’s Ultimate Budget Battle

Commodities, ETF, Mutual Fund, Uncategorized

Uranium Stocks Set To Rebound In 2011

April 5th, 2011

The Cassandras of the media beat the drums of fear concerning Japan’s millennial tragedy, which has been a confluence of perfect storms. There has been a great deal of bad news coming out of Japan which the press has spun into a blanket condemnation of the entire nuclear industry. It is only a matter of time until investors recognize that the media is spinning fear that goes beyond Fukushima. Undoubtedly, their tactic’s intention is to sell commercial TV time, even if it means destroying a major source of clean, efficient, and safe energy; nuclear is a vital component of clean and independent energy.

Imagine if we had stopped mining coal after Massey Energy’s (MEE) mining disaster. Consider if we had stopped oil exploration after BP’s (BP) Deepwater Horizon malfunctioned. But now nuclear energy (Market Vectors Uranium+Nuclear Enrgy ETF (NLR)) and uranium mining (Global X Uranium ETF (URA)) are being unfairly painted in the wake of Fukushima Daiichi. Would such an industrial world without nuclear power be less dangerous or cleaner? Let’s be rational: For more than 50 years, the American fleet of nuclear reactors has sailed millions of miles without radioactive calamities.

Admittedly, the radiation leaking from Fukushima has created grave risks to human health, but who among us can deny the dangers that fossil fuel pollution poses everyday? Critics can question whether the reactors at Fukushima were deficient in design or antiquated. The media doesn’t say that the Fukushima Daiichi Unit was only two weeks away from its 40-year expiration date when the disaster struck.
What the media chooses not to say is the that plants being built by today’s standards are 1,600 times safer than the nuclear plants of yesteryear. The media fails to say that China is reviewing their reactors, but they are beginning this month to build new-generation, state-of-the-art, safe reactors which are nothing likeJapan’s 40-year-old reactors.

They choose not to show the vote of confidence that has been given to the Southern Company (SO) by US nuclear regulators to build two plants near Augusta, Georgia, who said that this project does not present environmental dangers. This decision was made only a few days ago in the face of the media’s slant on Fukushima. The Commission stated they found nothing to stop it from granting licenses to the Southern Company. This is the first time that approval has been granted to build new nuclear reactors in the United States in over 30 years.

We have learned from Fukushima and the new generation of nuclear plants will be stronger and safer than ever. In the 10 years moving forward from 1995, US nuclear generation avoided the release of billions of tons of sulfur dioxide, nitrogen oxide, carbon dioxide and radioactive coal ash into the atmosphere. One can only wonder if we had gone ahead in 1979 after Three Mile Island and built all the planned nuclear power plants, how much further down the road we would be toward energy independence and compliance with the Kyoto Accords. Now the US is at the mercy of Middle Eastern oil and is mired in global conflicts.

There is no form of energy production that is without risk; coal mines can collapse, oil rigs and pipelines can explode, and dams can be breached. Don’t forget that Three Mile Island killed no one. Chernobyl was really a Russian weapons factory without a containment structure and was designed to produce material for nuclear bombs.

Overreaction to the Japanese disaster may in the end be worse than the accident itself, if it results in a delay of the nuclear renaissance. We should consider this as the rest of the world leaves the US far behind as they move on with safer and more reliable atomic power and removing their reliance from Middle Eastern fossil fuels.

Uranium investments will once again be seen as a hedge against the Middle East, and we may see a very powerful bounce as the selling seems to be coming to an end. Remember there are 440 reactors currently operating worldwide and many coming online which need uranium. If you can think a few years ahead, then you will realize that this media-induced hysteria was an incredible buying opportunity. Look for sanity to return.

Try my premium stock analysis service for free…click here.

Read more here:
Uranium Stocks Set To Rebound In 2011

Commodities, ETF

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