Rob Parenteau (The Daily Reckoning):
The U.S. consumer is bound to play only a lackluster role in this recovery. But this has not mattered to buyers of consumer discretionary stocks who are intent on using the typical business cycle recovery playbook in a recovery that is anything but typical.

The year-over-year growth rate of October retail sales ex-gas is nearly flat from a year ago, while the overall retail sales momentum is still just shy of closing that gap. With comparisons so easy against a year ago, when the global economy was in free fall, this is not a terribly inspiring result. Excluding autos, the sequential gain in October came up short of expectations, with only a 0.2% advance… Caution is still ruling, and for good reason.

Perhaps the dollar levels of retail sales tell the story more clearly. So far, we at best have a shallow recovery in overall retail sales, while furniture and electrical appliance stores are barely scraping out a trough.

Click here for the rest of Mr. Parenteau’s article at The Daily Reckoning.

Bill Bonner (The Daily Reckoning, UK Edition):
The Dow fell slightly on Friday. Oil ended the week at $77. The dollar went nowhere.

But gold rose to a new high – $1,146. Today it’s hitting more new highs above $1,160…

Whatever else may be going on, there’s a real bull market in gold. It’s a bull market that began ten years ago. If you’d bought stocks then, you’d have about what you have now… less inflation. If you’d bought gold… you have about 4 times what you had then.

Today, a quick glance at a chart shows gold looking a little toppy. Expect a correction. But remember, this is a bull market. In a bull market, you buy the dips.

Stocks, meanwhile, are in a bear market. In a bear market, you sell the rallies. This looks like a good time to sell – if you haven’t done so already.

“Take Your Gains,” says Forbes. And once you’re out of stocks, stay out until the bear market is over… probably at around 3,000 – 5,000 on the Dow. When the price of gold equals the price of the Dow, it will be time to switch.

We haven’t seen the last of this bull market in gold. It’s what you buy when you think government is making a mess of the monetary situation. You put your trust in gold as an antidote… as protection… as wealth insurance.

Are the feds making a mess of the monetary situation? Oh dear, dear reader… please ask us something harder. Trillion dollar deficits as far as the eye can see… Stimulus spending that turns the US into a Zombie Economy… Handouts to the bankers… gifts to the carry traders…

The feds are out-doing themselves… more below…

As for the bear market on Wall Street, investors are counting on a miracle… a ‘recovery’ that doubles corporate earnings in just a couple years. They think it’s “just like 1982”. Of course, it is just the opposite of 1982… see the table below.

Besides, there is no recovery… and profits will go down, as businesses compete for less spending.

The recovery may be all in your head, writes Robert Shiller, in the New York Times:

“Consider this possibility: after all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again — in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility.

“Back in 1931, for example, The New York Times attributed the emerging economic cataclysm to a “mood of pessimism which had been carried to grotesque extremes.” In 1932, it compared reckless talk about “depression” to shouting “fire” in a crowded theater.”

It doesn’t matter what anyone says. It’s a depression. It’s nothing like the garden-variety recessions of the Post-War period.

It’s a depression because of the nature of the work it has to do. It has to clean up 3 decades’ worth of filthy balance sheets.

Click here for the rest of Mr. Bonner’s insightful commentary at The Daily Reckoning, UK Edition.

Chuck Butler (The Daily Reckoning):
As I checked the currencies throughout the day yesterday, I noticed that as the day went on, the non-dollar currencies were stronger, led by the Big Dog, euro (EUR)… But then late last night, and I mean late last night, I checked them, and those gains had been wiped out.

So, when I arrived here this morning, I had one thing on the top of my list of things to do, and that was to find out what happened… Come on, I said to myself, it had to be more than the “risk on, risk off” stuff that’s been hanging over the markets like the Sword of Damocles! But, when you get right down to the nitty gritty, that’s all it was… For once again, there was some data, or story, or rumor, that spooked the markets into believing the global recovery isn’t going to happen, and the “risk off” came into play.

So what was it that spooked the markets… Well… The only thing I can find was the report yesterday about falling Housing Starts that Chris told you about… Did you know that about 14% of US homeowners were either delinquent on their mortgage or in some stage of foreclosure? That is the highest rate since the group started collecting the data in 1972!

But there was something else that was announced as the day went on, that I think probably spooked the markets more than anything else… And that is a key House panel approved two amendments to a sweeping financial-overhaul bill that would give federal watchdogs new authority to audit the Federal Reserve, and would establish a fund of as much as $200 billion to help dissolve large, troubled institutions. Rep. Ron Paul (R., Texas) offered the amendment seeking to subject the Fed to audits.

The House Financial Services Committee voted 41-28 to approve the amendments, wrapping up weeks of debate but postponing a final vote on the bill until after Thanksgiving.

OK… More deficit spending for sure, and I’m positive that this was “hung on this bill” to audit the Fed as the only way it would get through the gauntlet.
Click here to finish Mr. Butler’s article at The Daily Reckoning.

Bill Bonner (The Daily Reckoning, UK):

Poor Goldman Sachs. Everyone is on its case. Criticizing. Carping. Jealous. Envious.

So, today we rise in defense of the Wall Street giant. Yes, the Goldmen may be shysters. But they are honest shysters…

Besides, it was another slow day on Wall Street. Investors are still mulling the news. As we all know, the recession is over. But… what kind of strange recovery is this?

A survey showed that only 1 in 10 workers says his income is going up. This is the lowest reading since 1946.

Meanwhile, the news two days ago was that homebuilding took a dive in October. Work began on 11% fewer houses than the month before. On multi-family dwellings, the figures were worse – down 35%.

Why would homebuilding go down when the economy is supposedly gathering strength? Well, builders were wondering what would happen when they finished the houses. The new house tax credit was due to expire; they weren’t sure the politicians would be witless enough to renew it.

They need not have worried. Give the politicos a chance to do something stupid and they will come through every time. Since the end of October, Congress passed and President Obama signed an extension of the housing credit. Until next April, at least, first time buyers will get an $8,000 credit.

You’d think that would have revived animal spirits a bit in the residential construction industry. But today’s news tells us that mortgage applications are falling – even with lower interest rates.

How come interest rates are falling? Well, here again, we see the heavy hand of the feds. The “quantitative easing” has come to a halt… that is, the Fed is no longer buying US Treasury debt (it doesn’t need to). But its buying of mortgage backed securities continues. That program will last until March of next year.

Still… housing is not cooperating.

This news hasn’t had much impact on Wall Street. All that can be said is that investors have seemed to hesitate for the last couple of days.

Stocks fell softly yesterday, with the Dow down only 11 points. Oil stayed at $79. Gold rose to $1,141. And the euro remained at $1.49.

Investors must still believe in what the Washington Post calls a “lukewarm recovery.” It is like finding a body on the street. You feel for a pulse and discover that it has not quite reached room temperature. It is tepid… Not quite alive. Not quite dead.

Too close to the quick to bury… too close to the grave to boogaloo.

Click here to read the rest of Mr. Bonner’s commentary at The Daily Reckoning, UK edition.

The 19th century belonged to Britain, the 20th century belonged to America and in the 21st century, China will rule the business world. Whether you like it or not, this transition is already underway and it will intensify over the coming decades.

Throughout history, no empire has managed to rule forever. Instead, empires rise to power, they prosper and spread their influence. Thereafter, they over-extend themselves and then break down in some fashion. In fact, all the glorious empires of history had one thing in common – a spectacular collapse.

Now, there can be no doubt that America ruled the economic world for the better part of the previous century. However, this powerful nation has now entered a terminal decline. The recent credit crisis and the failure of some of the largest American financial corporations is compelling evidence that the world’s largest economy is well past its prime.

Today, America finds itself heavily in debt and to make matters worse, its demographics are also worsening. Unfortunately, the American leaders are attempting to postpone the day of reckoning by taking on even more debt! It is noteworthy that over the past year alone, America’s federal debt increased by approximately US$2.1 trillion and its projected budget deficit over the next decade is now slated to be almost US$9 trillion! If this does not shock you, then consider the chart below which shows the total obligations of the US government.

Click here to read the rest of Puru Saxena’s article.

Yesterday, we had a couple of Fed Heads talking, but the Big Kahuna stood out and moved the markets with his statements… Here’s the skinny…

Big Ben was giving a speech, and said, “The Fed will monitor closely the currencies, and the Fed’s policies will ensure that the dollar is strong.” Now, when he first uttered those words, the dollar got bought and the non-dollar currencies were sold… But then, a few of us had this feeling… It was a feeling that we had heard all this before… And there – in the archives, circa June 2008 – Bernanke said, “In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.” Wait! We won’t get fooled again!

In June 2008, his statements spooked the markets into believing the Fed was really going to do something to bolster the dollar… But when nothing came along, the dollar REALLY got sold until the financial meltdown of August 2008… I mean… What has the Fed done in the past 1 1/2 years to “bolster the dollar”? Near zero interest rates that will remain in place for longer than they should… Quantitative easing… A bloated balance sheet of toxic bonds.

You could see the V-8 moments on traders’ faces when they realized, yesterday, that all this had been said before, and nothing came of it, so… We won’t get fooled again!

So, then traders reversed their buying of the dollar and sent the dollar to the woodshed. You should have seen the reversal… It was amazing…

Click here to read the rest of Mr. Butler’s article.

London , England

We got back from South America on Friday… ready for a rest. So, we spent the weekend reading… and occasionally, thinking.

What we’ve been thinking is that the dollar is dead meat in the long run. But in the short run, it might have enough life in it to bite investors on the derrière.

The US stock market rose 73 points on Friday, to bring the Dow just 30 points south of the 10,300 mark. Why is this level important? It’s not really. But it reminds us that this is still just in “bounce range.” Big drops in stock prices are followed by bounces – always. A bounce of 50% of what was lost is not unusual. That’s what happened after the Crash of ’29, for example. So, there’s nothing exceptional about what we’re seeing on Wall Street.

But here at the Daily Reckoning we’re not smart enough or fast enough to play the countertrends. We want investment positions that we can ignore for years… We want to be able to go on a long trip… say, down the Inca Road or over the Hindu Kush. And when we come back, we want to find that we have at least as much money as when we left.

If stock market buyers – in the US – have more money a year from now than they have now, we’ll be surprised. The private sector is still more than 2/3rds of the economy. And the private sector has begun de-leveraging. Nothing that has happened in the last 8 months makes us think that that trend is going to reverse any time soon. There are 70 million baby boomers who need money for retirement. They’ve got to save. That means cutting back on spending. And that means less income for business. Are stock prices really going to go up when business income is going down? No.

We leave our “Crash Alert” flag flying, here at the worldwide headquarters. We don’t know when… or IF… stock prices will crash. But the downside risk is not worth the possible upside. Daily Reckoning readers should be out of all US stocks, except those they wouldn’t mind holding through a 50% correction.

The other thing we mistrust – aside from politicians, stock promoters and tap water – is the dollar. But here the story is more complicated. Because the next downswing in stocks could push the dollar up! Everyone is betting against the dollar. And most think it is a one-way gamble. But it’s not like Mr. Market to grant investors a one-way bet. He’s got something up his sleeve.

Last week, the Financial Times reported that a group of IMF economists had made a “Plea to reduce demand for dollar reserves.”

That is another way of saying: find something else to put in your vaults rather than dollars!

To read the complete article at The Daily Reckoning, click here.

It’s worth noting that Monday’s auction for 3-year debt was met with ravenous, near-record demand and that Tuesday’s 10-year sale met a bid-to-cover ratio of 2.8… historically high for the 10-year, but not even close to the 3.3 ratio for the shorter dated bonds the day before.

“The market is sending many errant signals right now,” notes Dan Amoss. “U.S. policymakers are trying to reinflate stocks, houses and wages, while also recapitalizing an undercapitalized banking system with overt and covert subsidies. All of these actions are extraordinarily costly — so costly that creditors are getting nervous.

For the rest of the article, read Ian Mathias at The Daily Reckoning.

The Dow rose again yesterday – up 44 points. Gold went up too – to a new record of $1,114.

Can anything stop stocks and gold?

Trees do not grow to the sky, dear reader. And for every bounce there is a bust.

“It’s amazing, the US is doing everything that Japan did wrong,” said a friend yesterday.

Let’s see… in the 1980s Japan’s corporate leaders thought they were going to take over the world. Investors thought so too. They expanded. They wheeled. They dealed. Prices shot up and they all thought they were geniuses.

In the ‘80s, everyone wanted to be Japanese. Management consultants used Japanese words to describe commonplace insights.

For example, instead of saying that businesses always need to try to do things better, they referred to “kaizen” as if it were the secret of success.

And US economists urged the Reagan Administration to have an “industrial policy” – because that was what Japan had.

Japanese businesses were the envy of the world. Japan was the world’s second largest economy. But in growth and stock prices it was Numero Uno.

It turned out, as it always does, that Japan did not have the secret to everlasting success. Instead, what it had was what comes before a fall.

Click here to read the rest of Mr. Bonner’s article.

So gold is now publicly loved by armchair investors, famous hedge fund managers and central banks… even as we write, Erin Burnett is “squawking” about it on CNBC. Are your contrarian senses tingling yet?

“So many hedge fund managers and pundits are singing the same tune: long gold and short U.S. Treasuries,” our friend Dan Denning wrote in today’s Daily Reckoning. “The bond bubble could go on much longer than anyone expects. And when so many people agree on something, none of them are usually right. As a contrarian, you’d be worried about becoming a victim right about now.”

Finish reading this article on DailyReckoning.com.