But while I so stubbornly poke holes in the political machine in Washington, I must avoid being hypocritical. If I shame our legislators for disregarding the democratic keystone principals of checks and balances, I must be careful to avoid the same pitfalls.

That means it is critical for you to hear voices other than my own. I do not want to become a scribe who dictates through his pen. I want this to be a democratic forum.

That’s why I am pushing my views aside today and giving room to Jeff Clark, the editor of Casey’s Gold and Resource Report.

If the name sounds familiar, it should. His work has graced this column before.

Here’s what Mr. Clark has to say. If you are a gold bug, you’ll love it:

“Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…

“First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron’s decision to file bankruptcy would ‘stabilize the company,’ but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

“And what had we been told by the media? Fortune magazine dubbed Enron ‘America’s Most Innovative Company’ for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.

“Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. ‘We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,’ assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.

“Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.

“Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.

“And during it all, Bear Stearns was recognized as the ‘Most Admired’ securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was ‘no liquidity crisis for the firm’ and insisted he ‘had the numbers to back it up.’ His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high. Perhaps his numbers were prepared by ex-Arthur Andersen employees.

“Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in U.S. history. L.B. succumbed to 2007’s Word of the Year, ‘subprime,’ and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.

“And what did CEO Dick Fuld tell us in April of that year? ‘I will hurt the shorts, and that is my goal.’ He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.

“Moving on to the largest U.S. government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, ‘Jump!’ Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: ‘It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.’

“He must have substituted his prescription eyewear with those giant New Year’s Eve glasses, because the government sunk $180 billion into the company and it still had to be split up and the assets sold to the highest bidder. I’m sure that his non-flippant comment had nothing to do with him making CNN’s ‘Ten Most Wanted Culprits’ list in 2008.

“GM, with $91 billion in assets, filed for bankruptcy in the summer of 2009 and is now largely owned by the U.S. and Canadian governments (i.e., taxpayers). The $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. But don’t despair: the government is pouring another $30 billion into GM to fund ‘reorganization operations.’

“GM shares? Bye-bye. For 83 years GM had been a member of the prestigious 30 Dow Industrial stocks. It managed to survive the Great Depression but not this decade’s Greater Depression. Yet chairman Ed Whitacre had insisted, ‘I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.’ I wonder what he thinks now that the stock is named ‘Motors Liquidation,’ trades only on the pink sheets, and sells for about 50¢?

“Topping off our list is the infamous Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors. But don’t be too upset, because the number is probably half that amount. Hey, the alleged size of the losses comes from his own ledger book, and should we really trust his balance sheet? Dubbed the largest Ponzi scheme ever, I beg to disagree, as you’re about to see…

“By now you are probably wondering… what’s bigger than all these? He’s covered the major frauds and scams of the past decade – what could possibly be left?

“To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”

“Here are a few clues…

“Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are ‘adequately capitalized’ and ‘in no danger of failing.’ Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, ‘We have no plans to insert money into either of those two institutions.’

“Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.

“Ben Bernanke claimed on February 28, 2008, ‘Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks…’ Henry Paulson added on July 20, 2008, that ‘It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.’

“Since the recession started in December, 2008, 144 banks have failed.

“Paulson informed us on April 20, 2007, that ‘All the signs I look at show the housing market is at or near the bottom.’

“The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.

“Ben Bernanke announced on June 20, 2007, that ‘[The sub prime fallout] will not affect the economy overall.’

“Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.

“Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:

-Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.

-Bailout funds in 2008 and 2009 total $8.1 trillion. That’s almost 78 WorldComs. It’s over 123 Enrons.

-U.S. debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That’s over $39,000 per citizen.

-David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the U.S. is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.

“We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the ‘blunder that will plunder’ the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.

“Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.

“This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.

“Yet, what is the guardian of our economy and money telling us now?

‘Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.’ (Ben Bernanke, December 7, 2009).

“This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.

“Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.

“Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.

“The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.

“So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?

“For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.”

I thought all you contrarian gold bugs would be interested in Casey’s not-so-subtle opinion.

If you want to learn the best ways to buy and hold gold and silver, and the stocks that will help you outpace the inflation that’s right around the corner,give Casey’s Gold and Resource Report a risk-free try and learn how to escape with your assets intact.

For $39 a year, it’s a no-brainer. Click here for more information.

Olivier Garrett (Casey Research):

Ben Bernanke is a dubious choice to be named “Person of the Year” by Time magazine.  While Time’s Managing Editor Richard Stengel credits him with recognizing early and reacting appropriately to the ongoing financial crisis, in reality, he was wrong time and again with both his predictions and his remedies. Just remember these gems:

• On July 1, 2005, Bernanke stated without hesitation that we were not experiencing a housing bubble: “I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.”
• November 2005, on derivatives: “With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.” And “the Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.”
• February 15, 2006: “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
• February 2008: “I expect there will be some failures of smaller banks” (Bear Stearns collapsed a couple of weeks later).
• But then again, I guess in regards to his nomination we are talking about achievements in 2009. That was the year Bernanke said, “Currently, we don’t think [the unemployment rate] will get to 10 percent.”

This is the same chairman of the Federal Reserve who told us that Fannie and Freddie were “adequately capitalized” and “in no danger of failing.”  

Unfortunately, he has not just been wrong about housing, unemployment, banking, and derivatives — his policies have directly contributed to all of the problems we now face.

High unemployment and the weak dollar threaten to further undermine our economy, yet his policy is to just keep borrowing. The massive debt his policies have foisted on the American taxpayer is weakening the U.S.’s position as global economic leader and hurting already tenuous relations with foreign governments. Bernanke has supported the policies of Greenspan and our current and previous administrations – the very policies that got us into this mess.  He has supported the leveraging of the American economy to rescue companies long past saving and the  borrowing of billions from foreign governments to line the pockets of corrupt investment bankers. 

I could recommend a few alternative names for runner-up, if Time’s criteria are really as dubious as they appear:

• Lloyd Blankfein from Goldman Sachs for robbing taxpayers legally
• Rick Wagoner of GM for taking the world’s largest car maker to bankruptcy in a quarter-century
• Tim Geithner for ensuring that all of our bankers prospered during the worst financial crisis since the ‘30s
• Tiger Woods for providing the nation with great dinner conversations and helping to spur tabloid sales.

Bernanke is insistent on using inflation to make our personal debts seem small, all the while setting the country up for a much larger disaster long term. Bernanke is borrowing from Peter to pay Paul… and robbing taxpayers to pay Peter. 

As you may have noticed, the government will not save you from the reverberations of a declining U.S. economy. You’ll have to take matters into your own hands… and no one is better at pointing the way than the editors of The Casey Report. No matter how dire the economic trend, double- or triple-digit gains within 12 to 24 months are easy if you discover the right opportunities to profit. Find out more by clicking here.

Unlike some stockpickers and newsletter analysts, who proudly trumpet all their winners, while shuffling the losers under the rug, I have no problem admitting when my calls go against me.

And to the delight of all the naysayers, this happened just a couple of days ago when gold prices shot to a record high. That triggered my sell-stop and, rather than let my pride come before a fall and hang on, it’s time to move on.

Don’t get me wrong, though… I’m still convinced that the yellow metal could suffer a correction for three main reasons…

• So far, inflation hasn’t reared its ugly head. If it stays in hiding much longer, disillusioned investors will probably head for the exits.
• If the U.S. economy recovers quicker than expected, investors will be inclined to abandon the safe haven of gold and reinvest in equities.
• The technicals point to a drop. The last four times gold spiked near or above $1,000 per ounce, it quickly (and sometimes precipitously) corrected.

However, giving into these convictions – and doubling down on gold – would mean abandoning two core investing disciplines that I swear by – position sizing and trailing-stops…

Have You Considered Using Trailing Stops & Position Sizing?

I know… you’ve heard about them countless times before. But indulge me for a moment, as I explain an aspect of both trailing stops and position sizing that you’ve probably never considered…

• When I speak at investment conferences, I always like to ask people to share their biggest loser. Heads go down and nary a hand rises.
• Conversely, when I ask them to share their biggest winner, it’s like I just offered free candy to an auditorium full of kindergarteners. Everyone’s hand shoots up and there’s a chorus of anxious, “Oohs!”

Nobody likes to talk about losing investments. Instead, we want to thump our chest over the latest 1,000% gainer. The reason for that is obvious, so let’s focus on the fear about talking about our losers.

Many investors turn their biggest loser into a total loss. Instead of employing a trailing-stop and exiting a trade as the price tumbles, they make it a long-term investment to save face. Or worse, they invest more at lower prices. Most times, the stock goes belly up and they lose even more.

Even the professionals can’t claim immunity here.

• For instance, take Bill Miller, the famous manager of the Legg Mason Value Trust Fund (LMVFX). Although Miller beat the S&P 500 for 15 consecutive years, he refused to man up to his mistakes when the market took a nosedive in 2008. He kept averaging down in stocks like Countrywide, Bear Stearns, Freddie Mac (NYSE:FRE), Merrill Lynch, Washington Mutual (OTC:WAMUQ) and AIG.
• He revealed the true depth of his arrogance when he was asked how he knew when to stop buying a falling stock. “When we can no longer get a quote,” he replied. In other words, the only price at which he was unwilling to buy more was zero.

Here’s my point…

Avoid Losses With A Position Sizing & Trailing Stop Discipline

When I joined The Oxford Club, I immediately stopped worrying about my losses. That’s because we religiously adhere to a 25% trailing-stop discipline and a position size of no more than 4% in any one investment. Thus, losses are always contained.

The beauty of such a simple, disciplined approach is two-fold…

• The results add up, decidedly on the plus side. Case in point: The independent Hulbert Financial Digest has ranked The Oxford Club newsletter (The Communiqué) among the top five in the nation. That’s based on 10-year returns, too.
• A trailing-stop and position sizing policy allow me to keep making bold calls without regret. The bolder they are, the smaller my position size.

For instance, for my short gold call, I only invested 2%. For a hypothetical $100,000 portfolio, that means investing  $2,000 and losing $500, or less than 1% of the total portfolio value.

Bottom line: I don’t ever let an investment turn into an unacceptable loss. And I never put too many eggs in one basket. Sure I might lose 25% here or 25% there, but when I keep my position sizes small, in the grand scheme of things, it’s no big deal.

Such a strategy leaves me with plenty of capital to re-deploy and keep gunslinging. And while gold didn’t work out, some other contrarian bets are already making up for the loss and then some.

• Take Sotheby’s (NYSE: BID), for example. Back in June, I advised readers to buy shares when everyone else believed the market for investing in fine art was going into a long hibernation. The fundamentals faltered, but they didn’t collapse. As a result, Sotheby’s rallied 68% from my entry point.
• Then there’s my recommendation last Thursday to buy into the beleaguered retail sector with hhgregg (NYSE: HGG). It’s up 5.7% since then.

If I take profits on both now, my misstep by shorting gold doesn’t even matter.

The Critical Component to a Disciplined Investment Approach: Accountability

But of course, a disciplined investment approach is useless without the critical component of accountability… In terms of position sizing, there’s only one person who can keep you honest: Yourself.

But when it comes to implementing trailing-stops, multiple options exist…

• A So-So Option: Enter the stop levels with your broker. However, this is not ideal. Market makers can manipulate prices to trigger these stops.
• A Better Option: Use a service like TradeStops (www.tradestops.com). For a nominal annual fee, it will alert you via text message and/or e-mail when your stocks hit their trailing-stops.
• The Best Option: Excuse my bias, but the best value for your money is The Oxford Club. We constantly remind you about position sizing and more importantly, notify you immediately when we hit a stop-loss or trailing-stop. And our members keep each other honest.

In addition, membership also comes with a constant stream of high quality, profitable recommendations. And they make up for the occasional downer, like my short gold recommendation! To find out more, take a few minutes to read our report on how it all works.

Good investing,

Louis Basenese

Source: Two Tips to Avoid Letting a Bad Stock Sucker-Punch You

The Dow slipped a bit yesterday – only 39 points. Everyone is watching. They want to see how far this rally carries on. Many think it is more than a bear market bounce; they think it is for real.

The prevailing opinion is that quick action by the feds avoided a more serious meltdown. Ben Bernanke says he was working to prevent a “second great depression.”

And now that the crisis is past, the economy is slowly climbing out of its hole. The second quarter showed GDP falling at 1% per year in the US… rather than the 6.4% rate recorded earlier in the year. Housing sales have perked up. Oil is trading above $71 – a sign of renewed economic activity. And gold seems to be getting ready for another assault on the $1,000 mark – a sign of growing inflation pressures.

At least… that’s the way the world sees it.

Here at the Daily Reckoning, we look… we squint… we wipe the fog off our glasses and try to tear the scales off our eyes. What do we see? We see a financial world gone mad.

Or, perhaps we should say… a financial world that has still not recovered from the Bubble Madness of 2002-2007.

One bubble begat another. We have previously reported that the bubble era was over. Because the machinery that made it possible – the bubblelized financial industry – was broken. Well, we were only half right. The finance sector has exploded. Bear Stearns was sold for peanuts. Lehman Bros. went broke. Merrill was forced into a shotgun wedding with the Bank of America (NYSE:BAC); with Hank Paulson holding the firearm. JPMorgan (NYSE:JPM) is still in business. So is Goldman (NYSE:GS).

But now we know that even Goldman might have gone under if Paulson – ex-Goldman man – had not engineered a stealth bailout. He brought the feds in to save AIG, and in the process he saved his old alma mater too… AIG’s biggest trading partner, Goldman Sachs.

And now Goldman is in the news almost every day. It reported spectacular trading results for the quarter, lifting the entire world stock market. What’s good for Goldman must be good for the whole world economy, investors reasoned.

Then it was reported that Goldman made its money in a variety of ways – none of which had anything to do with providing genuine service to the economy. Goldman made a fortune on the feds’ own money-raising, it came out. And then it came out … Goldman was making billions by trading at lightning speed — clipping investors for fractions of pennies each time a transaction passed through the markets.

The Italians think Goldman runs their country. They’ve got the top three posts in Rome… Premier Romano Prodi is an ex-Goldman guy. So is the headman at the Treasury. And the chief of the central bank too.

They think Goldman is like a cult… a semi-secret society of insiders with the power to rule the country – surreptitiously. Like the free masons… the Jesuits… or the Illuminati.

Goldman has its boys in important posts in the US too – but not at the same level as in Italy. Tim Geithner is not a Goldman graduate. Neither is Ben Bernanke. But both have plenty of in-put from ex-Goldman associates, colleagues and handlers.

We confess an interest – we have relatives working at Goldman. But we doubt that Goldman rules the world. Just look what they said and did over the last couple of years; they had no more idea of what was going on than anyone else. No, they don’t rule the world… but they do manage to persuade it in their direction from time to time…

During the bubble years, they urged consumers, bankers, and investors to borrow… to speculate… and to ruin themselves. Naturally, Goldman made out like… well… like a bandit.

And now Goldman guys urge the government to ruin itself too. Yes, dear reader, the bubble age is not quite over. Now, there’s a bubble in government debt… Here too Goldman makes money like a bandit. The more the feds borrow… the more debt there is to buy and sell. And the more the feds stimulate… the more acts of reckless speculation there are to finance.

And the more money Goldman makes… the more politicians the firm is able to buy. Of course, they welcome campaign contributions.

And of course, Wall Street is spending record amounts in lobbying. But the real appeal is the lure of being able to join Goldman itself… of being able to spend some time in Washington… pushing business Goldman’s way… and then cash in big by joining the firm and getting a piece of the action…

*** There are two big bubbles now. There is the familiar one in federal government debt. The other is the Peoples’ Republic of China.

Andy Xie says China is a ‘giant ponzi scheme’ fed by new investors hoping to get rich. Of course, the China story is an attractive one. China’s growth rate is spectacular. Even in a worldwide financial meltdown… and the biggest depression since the ‘30s… China is still growing at greater than 8% per year – or so the figures tell us. New cities are still being built… at a breathtaking pace.

Stocks on the Shanghai exchange are up 80% so far this year. China has the biggest pile of cash on the planet — $2 trillion worth. And it has more bright, well educated engineers, accountants and economists than anywhere else… In fact, it has so many economists trained at Western universities, it is almost sure to blow itself up…

Maybe this is the Chinese Century. Maybe it is not. Either way, it seems inevitable to us that the Chinese bubble economy is going to pop. Banks are lending 3 times as much as they lent last year. You can’t increase lending at that rate and still maintain credit quality – if there was any in the first place. A lot of buildings are going up that won’t find tenants. A lot of factories are expanding that won’t find customers. A lot of speculations are going on that investors will later regret. That’s just how a bubble works!

Mr. Xie says, for example, that the cost of property in China is about the same as in the US. But wait, the average income in China is only 1/7th what it is in the USA. How can the Chinese afford American prices? Well, they can’t. They’re all betting on the greater fool theory – that they can pay any price, because some greater fool will come along and pay more. Trouble with that is that the Greatest Fool of All finally shows up… and then the whole structure collapses.

*** Barron’s says that “The Greenback is Broken.” True, the dollar has been losing ground as the stock market gains it. Yesterday, it took $1.44 to buy a euro.

“I was amazed at how expensive everything is in Paris,” said son Will. “You go into a shop to buy a few groceries… You expect to pay about $12. Instead, the bill comes to $40. Or, you stop to have a cup of coffee and a croissant. It costs you $10. I don’t know how you can afford to live in Paris…

Will lives in Buenos Aires… with frequent visits to in-laws in Florida…

“You know, it used to be so much cheaper to live in Buenos Aires than just about anywhere. But now, I think the prices are about the same as in Florida. Everything seems so cheap in Florida. And you can make some very good deals on property…

“Remember that house that I bought in 2006. You warned me not to do it. But right after I bought it people were coming to my door asking if they could buy it. One guy offered to write a check for $600,000. Then another guy offered $675,000. I began to think I really had something hot.

“Of course, then the market crashed. Now, I’m thinking of selling it for $300,000 – if I could find a buyer.

“But that’s in South Florida… only about an hour up the coast from Miami. There are places in the US where things are really, really cheap. In Iowa, maybe… Arkansas… Michigan. You can get a nice house for less than you’d pay for a garage in Paris. From that standpoint… the US seems like the place to be. You can live so cheaply. And fairly well… but quality of life is another thing… ”

The dollar is low… America is cheap. Barron’s is probably wrong about the buck. It’s not broken – not yet. Our guess is that it will rise when stocks crash this fall.

*** We’ve thought a lot about quality of life. It is not a constant, fixed thing we conclude…

There are only three main decisions you make in life – what you do; who you do it with; and where you do it. Typically, these decisions are made without much real thinking – which is probably the best way. They are not things that lend themselves to thought… but to feeling. Pity the more man who marries a woman after a prolonged and logical thought process. The poor sap is doomed. His head may be in the game, but his heart will drop the ball. The next thing you know, he will be in divorce court or therapy.

Likewise, the decision about where you live is not one that is readily subject to logical analysis. You like a place because you like it… And you may like it for a variety of reasons that defy analysis. There’s no accounting for tastes, as they say.

Living in rural Iowa probably wouldn’t suit us. We don’t have the stomach for it. We couldn’t draw enough nourishment out of such lean meat. We need more stimulation.

We like Paris for the street scenes. Everywhere we look, we see something we like to look at – people, buildings, shop windows, streets, bridges, river boats… Same thing out here at our summer place. We work in an octagonal office that sits in the park. No matter what window we look out of we see something that pleases us. A stone barn with a red barrel tile roof. Those big limousine cattle grazing in the field. And there’s the house itself… a conglomeration of a fortified farm house from the middle ages with a Renaissance-style faux-chateau cobbled onto it in the 19th century. And there is our grandson… 16 months old… playing in the gravel…

… wait… what’s he doing? Uh oh… he’s eating the gravel…

Gotta run…

Source: Goldman…Goldman…Goldman…

Banks got us into this mess, so it’s banks that will have to get us out.

From the President on down, nobody is disputing such a self-evident premise.

And that includes Wall Street. Here’s a typical statement – from RDQ Economics LLC in NY, “They [the Obama administration] should be focused on stabilization” of financial firms “and stimulus — and that should not only be ‘Job 1,’ that should be the only job right now.”

Of course, the financial crisis has killed Wall Street. So the statement might seem a little self-serving, except for the fact – once again – that everybody agrees with it. I don’t buy it.

Maybe banks were the problem a lifetime ago – when Bear Stearns was taken over and Lehman went under.  When nobody knew which were the good banks and which were the bad banks and interest rates shot up as a result.

But it just takes one stupid question to realize we’re so past that now…

Who will the banks lend to?

To you and me? Wait a minute. We’re saving more. From a negative savings rate, we’re now saving about five percent of what we earn.

It’s about time. We couldn’t go on forever spending more than we make. It was bankrupting us.

Do you really want to buy a new car? Richard Wagoner, CEO of GM, wants you to. So does Ben Bernanke. And, let me go out on a limb and submit that President Obama also wants you to.

But what’s good for the economy isn’t necessarily good for you and me.

But surely companies need more loans from banks? If companies weren’t running so low on cash, why are so many of them cutting their dividends (37 so far this year)?

Aren’t the auto companies strapped for cash? Aren’t many banks scraping the bottom of the cash barrel? Couldn’t they use loans from other banks?

Yes, yes, and yes, BUT…

Fewer sales mean a smaller cash flow. When you’re earning less cash, the last thing you want to do is get a loan and go deeper into debt. Ask any responsible CEO: Higher interest payments and lower earnings aren’t a good combination.

Then there are the irresponsible CEOs, who have made a ton of bad decisions and are now forced to take out loans. Just ask Vikram Pandit of Citigroup (NYSE:C) and Bob Nardelli of Chrysler how it feels to put their companies into deeper debt?

No self-respecting bank would give these companies a loan. They’re getting them from the government.

Responsible companies – especially those in cyclical industries – are paring down debt right now, not increasing it.

In other words, we’re way past the point where banks are holding back the economy. In fact, there are very good reasons why the government shouldn’t spend hundreds of billions of dollars to a trillion dollars more to save banks…

• Throwing good money after bad. The so-called stress test isn’t nearly tough enough. Many of the banks getting government money won’t survive.
• The adrenaline shot is diluted. When banks were leveraged 30 and 40 to one, these banks might have been able to kick start a lagging economy. Not anymore.
• Inflated pay scale. A reality check is long overdue. Without the lucrative derivative market and with lower leverage, banks can’t afford to pay their 20-something employees millions of dollars anymore.
• Where’s the accountability? On a scale of 1 to 10, remorse gets 0 and a sense of entitlement gets 11. Dozens of banks were engaged in reckless behavior. They bullied Freddie and Fannie. They gave out billions of dumb loans. They infected other banks all over the world. Has any banker said, “I’m sorry?” Not that I know of.

We shouldn’t be asking our banks to go back to the bad ol’ days of dumb lending and dumber borrowing. It’s not fair to lenders or borrowers.

But even if banks wanted to return to their loosy-goosy lending ways (which they don’t), they wouldn’t find enough pent-up demand for credit to lift the economy out of its current doldrums.

Banks are a problem. But they aren’t the answer. Their festering issues are hurting the market because Wall Street thinks that banks are more important than they are.

It’s the ultimate lose-lose situation…

Save the banks and the economy still drops like a rock.

Don’t save the banks and the markets drop like a rock.

I’m bearish. And you should be too. There’s no easy way out of this dilemma.

Source: Saving Banks Accomplishes Nothing

The failure here is two-fold: One, the editors’ choices of who’s to blame, and two, the reader poll ranking those choices.

Let’s start with who’s on the little list — or more to the point, who’s not.  Time did an OK job of unearthing lesser-known names who definitely bear some culpability in the disaster — such as AIG’s Joe Cassano, who did much to unleash the nightmare of credit-default swaps.

But how can anyone take this list seriously when it doesn’t include Ben Bernanke?  Yes, Greenspan (who did make the list) laid the foundation, but Bernanke built on it with abandon.  Perhaps it’s because the intelligentsia regards him a genuine scholar on monetary matters — you know, historian of the Great Depression and all that.  A far more respectable background than Greenspan, who hung out with Randians and extolled the virtues of the gold standard.

Where’s Tim Geithner, the guy whose fingerprints were on every boneheaded decision of 2008, from Bear Stearns to Lehman and beyond?

And where’s Robert Rubin?  What, is there some numerical limit of Goldman Sachs guys the editors arbitrarily applied to the list?  Hank Paulson’s on there, so Rubin can’t be?  Seems like Time lays a lot Rubin’s faux-deregulatory handiwork on the shoulders of Bill Clinton, which I daresay might be a bit unfair.  Clinton revealed his naievete on such matters when he remarked early in his first term, “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of f*$(#@g bond traders?”

Oh, and then there’s Time’s inclusion of “The American Consumer.”  Oh, that was clever, alright.  I bet the editors were congratulating themselves over the brilliance of that one — “Gee, this is almost as good as choosing ‘You’ as Person of the Year a while back!”  But this too is too harsh — consumers were merely taking their cues from the politicians and central bankers driving the ship.

Even worse than Time’s 25 choices are the rankings furnished by its readers.  I guess letting the readers vote is Time’s idea of Web 2.0.  But the sheer folly of this is revealed when the number-one choice as ranked by the people who drove by the website, the premier villain of the financial calamity that’s befallen us is… drum roll, please… Phil Gramm.

Phil Gramm?!?  Yes, his name was the first on the faux-deregulation legislation that repealed Glass-Steagall in 1999, and he’s worthy of inclusion on the list.  But I suspect the reason he ranks so high is one that Time doesn’t even mention in its writeup: His Kudlowesque comment last year, while on UBS’s payroll and consulting the McCain campaign, that the recession is a mere figment of the collective imagination.  Must’ve stuck in the craw of a lot of political junkies.

And if we’re going to beat up on former members of Congress, shouldn’t we beat up on a couple of others who are still around, like Barney Frank or Chris Dodd?

But whatever.  Time’s payroll and page count shrinks as the economy and the Internet take their toll.  Let us celebrate.

Source: I Have a Little List

MSNBC reported last night that Obama is already getting advice from Ben Bernanke.  That ought to make you feel warm and fuzzy right there.

But wait, there’s more!  As of this writing it appears Lawrence Summers is the leading candidate for Treasury Secretary.  As in, the guy who was Clinton’s last Treasury Secretary.  So much for the promise of “no retreads” in an Obama administration.

I mean, Larry Summers?!  That’s really in-your-face, on any number of levels.  PC-liberal types are still up in arms over his remarks about the size of women’s brains when he was running Harvard, and the general consensus in Cambridge was that he ran Harvard with all the people skills of Attila the Hun.

More to the point is this: Summers was among those present at the creation of the biggest credit bubble of all time — when the Glass-Stegall Act was repealed in 1999.  As I’ve written before, tearing down the wall of separation between commercial banking and investment banking is a good idea in principle.  But written between the lines of the replacement legislation was a guarantee of government bailout if big leveraged bets went awry — one reason that the ultimate deregulator, Ron Paul, voted against it.

But hey, it’ll make for a nigh-seamless transition at Treasury — Paulson to Summers to national bankruptcy.*

And if it’s not Summers, the other candidates whose names have been floated will substitute just fine.  Tim Geithner?  The New York Fed chief was the architect of the (NYSE:JPM) JPMorgan-Bear Stearns deal, and has quietly kept his hand in every bailout and associated scheme since then.  New Jersey Sen. Jon Corzine?  Ex-Goldman Sachs.  Nuff said.

Presidents might change.  Taxes go down, taxes go up.  But the criminal finance class always makes sure to provide for itself first.

*Speaking of national bankruptcy, what sort of omen is it that the book version of I.O.U.S.A. was Amazon’s top seller Tuesday night as Obama snagged his victory?

Source: The Fix Is in

More from Andrew Snyder at Today’s Financial News:

In one of the latest what-were-you-thinking moves, the Federal Reserve just announced it has hired Michael Alix as a bank regulation advisor.

Who the heck is Michael Alix, you ask? He is the former chief risk officer at Bear Stearns, a company that thought risk-management was an oxymoron. Essentially, he is the guy that allowed Bear Stearns to get so over-leveraged, it collapsed under its own weight.

Now, he is an advisor for the Federal Reserve. At the very least, he can tell us what not to do.

Frankly, I believe the Fed’s hiring of one of the executives at the center of today’s market fiasco proves that the “good-old boy” system remains alive and well in Washington. It is a disgrace.

Source: The Fed hired who?

The most interesting news item recently was found on the cover of the Financial Times newspaper, where we learn that a guy named Lahde “made tens of millions of dollars from betting against the financial and property sectors during [the] past two years”, and he now wanted to thank “the low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA” who made it all possible for him to find enough suckers.

He noted that “These people who were often truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG (NYSE:AIG), Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the aristocracy,” he says, “only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

This goes along with an article in the St. Petersburg Times about Tom James, chairman and chief executive of Raymond, James Financial, who had “some tough words for the wizards of Washington, D.C. who oversaw the recent $700-billion bailout package”.

He reports that “The Brave And Wonderful Mogambo (BAWM) was right all along! Those government weenies are the biggest freaking morons you ever saw, and we as a country should be ashamed of ourselves for having elected such corrupt, half-witted, utter failures and congenital idiots!”

As you have probably guessed by now, he did not say those exact words, but he implied every syllable when he said, “Legislators were almost embarrassingly ignorant of how the financial system works”, which I figure explains how they don’t understand the linkage between their own Bad, Bad Performance (BBP) as legislators and the subsequent Bad, Bad Performance (BBP) of the economy, and he says that only 3 of 16 legislators that he talked to actually understood what was going on in the “credit crisis.” Less than 20%! Hahaha! We’re doomed!

Well, maybe these Congressional losers will understand the unfolding economic slowdown, as evidenced by the Baltic Dry Index, which is an index of the cost to transport stuff by cargo ship, and which has fallen precipitously, which seems very important to me, and to Junior Mogambo Ranger (JMR) Riccardo, too, who is also alarmed by this like – as I previously said – me.

It’s actually beyond scary, in a terrifying kind of “ain’t nobody buying nothing in a consumer economy” kind of way, which means that without the consumer buying stuff as his or her contribution to the famous statistic of “the consumer is 70% of the economy”, we are, in case you ain’t heard, freaking doomed if the consumer ain’t buying!

Well, maybe not all buying is drying up, as Ted Butler, silver market analyst, reports that in the last 10 months, “some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces.”

In fact, when you add it all up, “Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout.”

Thus, it is easy to see why Mr. Butler is “bullish beyond belief for silver”, since this kind of demand means that “In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist!” Wow!

More than one-seventh of all the silver bullion “thought to exist” in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 10 bucks an ounce? No wonder I am so bullish on silver!

He also notes that the gold/silver ratio is at more than 80, which is “one of the biggest differences in history.”

And not only that, but since there are 4 to 5 billion ounces of gold in the world versus only 1 billion ounces of silver, that means that “the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5)”.

In dollars and cents, the dollar value of all the gold in the world is about $4 trillion, while the value of all the silver in the world is but a laughably low $10 billion! Where do YOU think the most profit potential lies? Me, too! Hey! This investing stuff is easy! Whee!

Source: A Bull in a Silver Shop

So along comes Stein with a mea culpa for missing the recent stock market crash.  OK, so a lot of genuinely smart people didn’t think it was going to be as horrific as it turned out to be.  But Stein chalks it up to just one little misstep of the otherwise brilliant Paulson-Bernanke-Geithner team.  “I did not foresee the catastrophic mistake, as I view it, by Treasury Secretary Henry M. Paulson Jr. to allow Lehman Brothers to fail,” Stein writes. “That failure left a gaping hole in the financial services industry, and blew away confidence that the Feds knew what they were doing.”

Actually, Stein is sort of onto something here.  At the time Lehman blew up, Paulson & Co. had already engineered the demise of Bear Stearns and the full government takeover of Fannie and Freddie.  Nothing appears to have happened to alter my hypothesis at the time of Lehman’s demise about why it was allowed to happen.  But looked at from the Paulson interventionist standpoint, it was a blunder of the first order.  Lehman’s downfall pretty well doomed AIG (NYSE:AIG) and put a host of money-market funds in grave danger.

At this stage, it was obvious to all that Paulson & Co. were pretty much making it up as they went along.  Stein writes, “After Lehman, I felt sure that the government would realize its mistake and issue blanket solvency guarantees to banks. But that didn’t happen, the stock market fell apart, credit went icy cold and the wheels started to come off the economy. This also took me by surprise.”

This smacks of disingenuousness, an after-the-fact conceit that, “If I’d been in charge, I’ve have known which levers and pulleys to manipulate to make everything just so.”  So what does Ben think ought to be done now?  Well, it has nothing to do with the free market he allegedly reveres.  “The need for the government to take action seemed so clear — and still seems so clear that I cannot believe a day passes without its happening. But the days pass, nothing happens, and I am proved wrong again. And I lose some of my life savings and it hurts.”

Yes, the government is now going to own a piece of insurance companies, just as they’ve moved to own a piece of banks — but government is “doing nothing” in Stein’s view.  It’s enough to leave you speechless.

But no, Stein has one more whopper to lay on us before bringing this column to its merciful end.

And, closer to home, a talented makeup artist who works with me almost daily in my TV appearances asked what happened to people in a recession. (She is young.) I said that fear and insomnia happened to most people but that a few million would actually lose their jobs and millions more would lose income.

“What do they do?” she asked, looking worried.

“They find other work or live off their savings,” I said. “They certainly cut back on their spending.”

“What if they don’t have any savings?” she asked. “I don’t have any savings,” she said. “No one I know except you has any savings.” She looked extremely worried.

This is perhaps the main lesson of this whole experience. It is basic but still unlearned: human beings must have savings. This is not just a good idea. It’s the difference between life and death, terror and calm. So start saving right now, and don’t stop until you die.

Ben, where the hell were you all these years when Alan Greenspan was — by his own admission to Jon Stewart — discouraging people from saving by slashing interest rates, thus encouraging them to speculate wildly, first on tech stocks, then on real estate?

The only redeeming thing about Stein’s column is a postscript in which he says a windfall profits tax on oil companies is a dumb idea.  Yes, it is, Ben.  But you and Kudlow and Cavuto and the rest of you shrieking jackasses don’t help make the case when you’ve been so stunningly, breathtakingly wrong about everything else when Greenspan and Bernanke and Bush were running this country off a freaking cliff.  So do us all a favor:  Just shut up.  SHUT UP!  Go away for a while.  Your “free market” patina is going to make it damn near impossible for genuine free-marketeers to state their case for the next couple of years, at least.  We’re left to cry, not unlike pathetic hardened communists confronted with the demise of the Soviet bloc, “But what’s been happening isn’t really a free market!”

Oh well.  If you can’t change any minds, at least you can take a step to recover from whatever whacking the market has recently dealt you.

Source: Ben Stein’s mea culpa