Bill Bonner (The Daily Reckoning, UK):

The financial world is slowing down. Analysts… economists… and blabbermouths are getting ready for the holidays. The news flow is quieting. The noise is abating.

So, let’s talk about gold. But first… a note about the little train that couldn’t.

The Eurostar connects London and Paris. Last Friday, several trains entered the tunnel and stopped. According to the press reports, the weather was unusually cold in France and unusually warm in the tunnel. This caused some sort of malfunction, stranding 2,000 travellers under the dark water and thousands more on both sides of the channel.

It was a blow to France’s pride; the French consider their train technology to be the best in the world. Yesterday, President Sarkozy called the head of the Eurostar and chewed him up… and this morning, the trains were meant to be running again.

We rose at 5am to rush to the Gare du Nord, so we could get the 6:43 to London.

“You’re going to take the Eurostar,” said the taxi driver with a laugh. “Well… good luck…”

When we got there, it was obvious something was wrong. Passengers weren’t lining up in an orderly fashion. Instead, hundreds of travellers who had been waiting three days for a train formed a miserable, complaining mob.

We were just trying to figure out what was going on when a phalanx of police came down the steps, followed by another group of Eurostar staff members. They wandered around… formed the passengers into lines… answered questions and then, nothing happened. We waited…

And waited…

“This is intolerable,” one French passenger yelled at a young woman in uniform.

“You people have no respect for your customers. We’ve been waiting days to get back to our families… and you treat us like cattle. It wasn’t our fault the trains didn’t run as they were supposed to. It was your fault. And you should have done a better job of dealing with the trouble you caused.”

A murmur of approval went up from the crowd. The clerk walked away. We waited. Finally, after half an hour, your editor gave up. His business in London could wait. We walked over to our office, only about 20 minutes away, on foot.

Now… back to gold…

The price fell $15 yesterday to just under $1,100. We expected a correction in the gold market. But we thought it would come along with a correction in the stock market. Stocks rose 85 points on the Dow yesterday.

We take this as a warning: something is going on that we don’t understand. That said, there’s a lot going on that we don’t understand.

But the broad patterns generally make sense. Boom was followed by bust. As dear readers know, the force of a correction is equal and opposite to the deception that preceded it.

The deception of the Bubble Era being exceptional, the correction would be exceptional too – even under the best of circumstances.

But these are not the best of circumstances. Because several other things are happening… things that need to be reckoned with too.

• The US is losing its privileged place in the world. Americans now compete with many other people in many other places for the world’s resources – including its savings.

• The international monetary system, an experimental system built of paper dollars, may be falling apart.

• The days of cheap and bountiful energy are over.

• Governments are going broke. State governments. National governments. In Europe. In the Middle East. And in America.

• The engine of economic growth – Americans’ willingness to go into debt in order to consume more and more of the world’s output – has gone into reverse.

• And, governments are meddling on an unprecedented scale… delaying and avoiding necessary adjustments, possibly turning an ordinary depression into a Great Depression… or even a Much Greater Depression.

These are not small challenges. Any one of them would be a worthy crisis on its own. Put them together and you have the makings of a catastrophe.

What will happen? Don’t know. Wish we did.

A series of mini-disasters? Or one big planet-wide blow-up?

Or, are the authorities so smart that they can engineer trouble-free solutions to these challenges?

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

Bill Bonner (The Daily Reckoning, UK):

Leading economists have a one-stop solution for just about everything: stimulate consumer spending.

When the price of oil hit $150 a barrel, the first major alarm sounded. Something was wrong. Now we have a clearer idea of what it was.

To make a long story short, leading economists have a one-stop solution for just about everything: stimulate consumer spending. But $150 oil warned us: continue down that road and you will run out of gas. There isn’t enough oil in the world to allow US-style consumption for everyone.

Two weeks ago, Dubai gave us another wake-up call. Thought to be risk- free, since it was implicitly backed by all the oil in the Middle East, Dubai World nevertheless stopped paying its debts. And last week yet another bell banged our eyes open. Greece announced first that it would not try to reduce its deficits… then, that it would. Hearing the news, the financial world rolled over and went back to sleep. But The Wall Street Journal offered a hint of trouble to come: “Markets force Greek promise to slash deficit,” said its page one headline.

If markets could force the Greeks to trim their deficit – about 13% of GDP… not far from the US level – could they not force Britain and America too? Coming right to the point, the fixers face not just one crisis, but many. They have a growth model that no longer works. They have aging populations and social welfare obligations that can’t be met. They have limits on available resources, including the most basic ones – land, water, and energy. They have a money system headed for a crack-up, and an economic theory that was only effective when it wasn’t necessary. Now that it is needed, the Keynesian fix is useless. If a recovery depends on borrowed money, what do you do when lenders won’t give you any?

But let us backtrack to a smaller insight. Then we will stretch for a bigger one. Americans are supposed to be insatiable shoppers. For at least three decades, the world counted on it. It was the growth model for almost all the Asian manufacturing economies… and for resource producers everywhere. But as we approach the biggest shopping season of the year, a survey of consumers signals an earthquake. Americans plan to spend an average of 15% less during this holiday season than the year before. Only 35% say they will take advantage of post-Christmas sales, traditionally when the stores unload unwanted inventory. They seem to be satiable after all.

Push come to shove, Americans react like everyone else. Now, they are being shoved into a new world, very different from the one they have come to know. In 1973, the American working stiff went into a decline. His weekly earnings, in real terms, went down for the next 36 years. The typical worker earned the equivalent of $325 a week in 1973… adjusted to constant 1982 dollars. By US official accounting he was down to $275 a week in 2009. Unofficial estimates put the loss as high as two-thirds of his purchasing power.

Yet, his spending increased anyway. How? He squeezed the rest of the world. The US trade gap began to go seriously negative in 1992. By 2006-2007, foreigners were shipping to America nearly $900 billion more per year in goods and services than they received in exchange. This gave the typical American a standard of living few people could afford; too bad, he wasn’t one of them.

Now he’s up against billions of Patels and Hus. They work for less. They save more. They want more stuff too. And they’re suspicious of the dollar.

Their economies are growing faster…

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

Bill Bonner (The Daily Reckoning, UK):

Are we in a depression yet? The number of Americans living on food stamps has risen to 37 million. The ‘30s had soup lines. The ‘00s have food stamps.

And what else was big in the ‘30s? Escapist movies. Here’s a headline for you:

“Box office takings set to smash records,” says the Financial Times. What kind of movies? End of the world catastrophes… vampires… strange non-humans doing strange things.

For example, there are ads for Avatar all over Europe. The film seems to concern Spock-like creatures who use bows and arrows. Pure escapism, in other words.

Stocks went down a bit in America yesterday. The commentariat blamed it on higher producer prices, thought to be harbingers of consumer price inflation.

Of course, consumer price inflation is what everyone is counting on.

The debts of the past need to be reckoned with. Borrowers are doing the best they can. They pay when they’ve got the money. They default when they don’t. Since ’07, mortgage debt is down about 2% –to about $10 trillion. Most of that decline comes as a result of defaults and repossessions.

Let’s see, 2% over two years ain’t very much. At that rate, it will take half a century to bring mortgage debt down to the comfortable levels of the ‘80s.

What’s more, it will be hard to do at all. Incomes are stagnant… or actually falling. As people cut back on their spending in order to pay down debt, it reduces income to employers, as a consequence of which the economy is weaker… with fewer jobs and less income to the folks who are trying to pay off debt.

What a drag! People ran up huge debts believing that they would never actually have to pay them. They figured they would refinance, and pocket the built-up ‘equity’.

But, according to a report in this week’s press, though mortgage rates are at a multi-generational low, finding a banker willing to lend is as hard as finding a liquor store that makes home delivery on Sunday.

That’s largely because the equity most homeowners have is negative. Houses are down about 30% since ’07. Any buyer who bought or refinanced a house in the last four or five years is likely to be under water.

Even in normal circumstances paying off debt is a long, hard process. Mortgage debt is long-term. Paying it off is long-term too. Many people see years of painful scrimping and saving ahead of them.

What they would all appreciate is a little help from inflation. Inflation lightens the load. It increases nominal incomes while holding mortgage payments steady. It increases nominal ‘equity’ too.

House prices tracked inflation for a hundred years. It was only in the last ten years or so . . .

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

Bill Bonner (The Daily Reckoning, UK):

We are high over the African veld… at least, we think it is called veld. That’s ‘field’ to you and us. And we’re so high above it we can’t see it anyway.

After a few days in Johannesburg, we’re on our way to Dakar. Why would Bill want to go to Dakar? We asked the same question. But Dakar is just a stopover on the way to Washington.

Meanwhile, there are things to be reckoned with.

When we left the ground, it appeared that we were finally getting the shakeout in gold that we’ve expected… and maybe the beginnings of a shakeout in stocks too.

(Whoa… we just landed in Dakar… got an internet signal. Seems gold is down another $22. The Dow, however, rose 51 points yesterday.)

On Friday, the London gold market saw the highest volume traded in history.

London gold expert, Dominic Frisby, sent this commentary:

“After peaking last Wednesday at about $1,220 an ounce, the price has fallen almost $100 in just four trading days. Friday’s capitulation – some $60 – was particularly ugly. It shows just how much speculative, hot money there is in the sector.

“So what now?

“In the week to last Wednesday 7 December, almost $300m of call options (options betting the market will rise) were traded in the largest gold exchange-traded fund (ETF), GLD.

“That is more than the entire call volume of the second and third quarters of this year – in just five trading days. On Wednesday alone, trading volume in GLD calls amounted to almost 50% of what the market traded in the entire second quarter.

“That is a sign of extreme speculative excess. It is not the time for short-term investors to buy. At such extremes, you have to ask: where are the next buyers going to come from?

“As we head into year end, there are a lot of fund managers who will want to lock in their profits for the year.

“I’m afraid that means they will sell their gold – and anything else they own that has done well – at the slightest hint of a turn in the markets, because they will want to secure their gains (and their bonuses) on what will have been an excellent year. That’s what we saw on Friday and why the market fell so hard, so fast.

“In the short term, this does not bode well for any market – except one. “It may be that we are finally seeing the end of the ‘Great Reflation Trade’, this astonishing rally out of the crash.”

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

Gold’s best part is still ahead. And this is not just a bull market; this is a fortune maker.

Bill Bonner (The Daily Reckoning, UK):
Yesterday, gold closed at $1,200. Long-term Daily Reckoning sufferers can finally hold their heads up. We bought gold at the beginning of the bull market. New readers, with no gold buried in their back yards, may wonder: is it too late?

Here is a quick answer: no. We’re still a long way from gold’s ultimate destination. Our ‘Trade of the Decade’ was to buy gold on dips and sell stocks on rallies. The idea of that trade was that gold and stocks were going in opposite directions. Stocks were supposed to go down. Gold was supposed to go up. They would meet at some point, we imagined.

But lately they’ve been going in the same direction. Yesterday, for example, stocks rose with gold; the Dow added 126 points.

Which poses a bit of a dilemma. We think stocks are more likely to go down than up. Will gold go down too? Yes, probably.

Does that mean you shouldn’t buy gold here? No, not necessarily. If you’re trading, we’d suggest you wait. Gold is ready for a correction.

But it is usually a mistake to trade in and out during a major bull market. If the trade goes against you, you end up sitting by the sidelines as the market roars forward. You miss the best part.

Gold’s best part is still ahead. And this is not just a bull market; this is a fortune maker. Gold still hasn’t entered the bubble phase. It is just a very strong bull market. Eventually, it will soar… adding $100 in a single day. It will take our breath away. You want to be in it when that happens.

But is $1,200 the best price you can get to enter the gold market? Probably not. But it’s not a bad price. You can wait for a better one; but don’t wait too long.

John Hussman puts the odds of a major market crash sometime in the next 12 months at 80%. If stocks go, gold is likely to go down too. And it could stay down for a long time.

We keep our Crash Alert flag flying… and have a hunch the crash will come sooner rather than later. Day after day, the bubble gets bigger… and the pins get closer. Greece? Britain? The US?

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

Chuck Butler (The Daily Reckoning):

Front and center on the currencies this morning, we have the fears of a default in Dubai, fading, and that brings the risk takers back out… So, we had one day of bloodletting on Friday, and come Monday, the tourniquet had been applied, and things are back on track. The Big Dog, euro (EUR) is off the porch, chasing the dollar down the street once again, and is trading at 1.5050, as I begin to write this morning.

I had a long time customer send me a note on Friday, asking me about the selling going on in the currencies and commodities because of the news that Dubai World was asking for help with their loans… I replied that the research I had read led me to believe that this would fade, in that the ruling families of Dubai and Abu Dhabi have bloodlines, and even though they had feuded in the past, blood would run thick, and the country would step in to help with the loans, which would mean a return to dollar selling once it all got straightened out… WOW!

This morning, there is news that the UAE will back the banks and the loans, so… It’s a “risk on” day once again!

After the Treasury auctions of last week, and a supposed “good covering,” the end result is that we have this pile of debt, and Treasury yields very reminiscent of something right out of the time warp of Eisenhower! But! Here’s the thing that US Treasury Secretary Geithner is hanging is hat on… These low yields reduce the interest expense for the US. Yes, Timothy, that my be true… But when you are issuing the amount of debt that’s on your plate to issue, then the “net” reduction to interest expense is a fallacy. Go ahead, do the math, Timothy… I dare you!

Can you believe that tomorrow is December 1st? WOW! Let the Holidays begin! But what comes to us on December 1st? That’s right, it’s the Reserve Bank of Australia (RBA) meeting. I’ve pinned my colors to the mast of another rate hike by the RBA tomorrow, and by the looks of it, Traders are beginning to pin their colors to that same mast! The reason I say that is the performance of the Aussie dollar (AUD) overnight. The Aussie dollar has a 91-cent handle this morning, which is far better than that 0.8998 figure that Mike reported on Friday morning!

Before I headed home on Wednesday last week, gold had pushed to a $25 gain in one day! WOW! I thought, “Can’t wait to see what the price looks like on Monday when I return!” But the Dubai loan problems took the wind out of gold’s sails, and the shiny metal lost $25 on Friday! UGH! Oh well, it gives buyers the opportunity to buy more at a cheaper level, I thought to myself… Then I thought… You should go check out what your good friend Addison Wiggin has to say about gold… So I did!

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

Bill Bonner (The Daily Reckoning, UK):

Well, the days are dwindling down. September. November. Tomorrow it will be December.

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

Last week, one of those pins looked as if it might pop it. While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?

Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, it had set itself the goal of becoming a major financial and tourism centre.

And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building…

But the whole place was built on debt and sand. And as the debts mounted, the sands washed away.

On Friday, US markets reacted. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.

Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf states are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.

Does that mean this bubbly trend is stronger than we thought? Is this a bubble made of Kevlar? Will it resist other pins?

We wouldn’t count on it. Remember, China is “ Dubai times 1,000”, as James Chanos put it. When China pops, we’ll see US stocks down a lot more than 154 points.

In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over. And when that happens, emerging markets will probably be hit even harder.

Dubai was a “wake up call”, for investors in emerging markets, says the New York Times today.

But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realisation that the recovery is a fraud.

“Half a recovery,” says a New York Times columnist, may be all we get.

Well, the days are dwindling down. September. November. Tomorrow it will be December.

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

Last week, one of those pins looked as if it might pop it. While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?

Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, it had set itself the goal of becoming a major financial and tourism centre.

And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building…

But the whole place was built on debt and sand. And as the debts mounted, the sands washed away.

On Friday, US markets reacted. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.

Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf states are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.

Does that mean this bubbly trend is stronger than we thought? Is this a bubble made of Kevlar? Will it resist other pins?

We wouldn’t count on it. Remember, China is “ Dubai times 1,000”, as James Chanos put it. When China pops, we’ll see US stocks down a lot more than 154 points.

In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over. And when that happens, emerging markets will probably be hit even harder.

Dubai was a “wake up call”, for investors in emerging markets, says the New York Times today.

But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realisation that the recovery is a fraud.

“Half a recovery,” says a New York Times columnist, may be all we get.

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

Bill Bonner (The Daily Reckoning, UK):

The ‘recession’ did more damage than they think

Claptrap! Nonsense! Balderdash!

Everywhere we look, someone is saying something ridiculous.

Which is good news to us. This Daily Reckoning was getting to be serious work…what with the world facing a total financial meltdown and all.

So, we’re pleased to be able to lighten up by, once again, telling you what an idiot Tom Friedman is. You already knew that? Well, it doesn’t hurt to repeat it…

We hadn’t seen much of the old Tom recently. His recent editorials in the New York Times were no smarter than before, but a bit subdued…as if some chemical trace of good sense had slipped into his system, perhaps from a paper cut. But now, he’s back, big as life and twice as stupid.

We’ll come back to Tom in a moment, but since this is a financial service, we should probably begin with the financial news.

The Financial Times is looking over its shoulder. The recession is over, it says; time to take stock of the damage.

“Beyond the Crisis… With most of the world’s economies officially out of recession, the FT launches a series examining the legacy of worst global economic crisis since the 1930s,” says the FT. But according to the figures below the headline, the crisis wasn’t so bad. The US economy walked backward only 3.5%. Now, it’s making progress again.

The FT editors should keep their eyes on the road. The ‘recession’ did more damage than they think. And it isn’t over… There’s more trouble ahead.

The ‘recession’ in the US has wiped out…

…ten years of stock market progress. Actually, stock prices are no higher than they were in 1998…

…ten years of employment progress. You have to go back to the ’90s to find a time when so few people were working in America…

…ten years of income gains. The typical household had less real, disposable income than it had 10 years ago.

In other words, a whole decade has been lost. Baby boomers are now ten years older, and less prepared for retirement than any previous generation in US history.

In Florida, joblessness has reached 11.2%. The jobless picture gets even grimmer when you consider the effect of long-term unemployment on the unemployed.

“It’s a killer disease,” says Thomas Cottle of Boston University. “People are going to be damaged and may not recover in their lifetimes.”

The FT elaborates: “The longer people are out of work the more their skills decline and the less appealing they become to employers.”

That puts the boomers in a bad spot. If they lose their jobs now they may never work again. Which means, they will face retirement with very little money…and a keen interest in making sure the feds keep the money flowing their way. They may not recover in their lifetimes…

Housing starts are at a 10-month low. Mortgage applications are at a 12-year low. As far as we can tell, both housing and employment figures are getting worse.

In short, the ‘recession’ is far from over, even if the feds are able to jive up the GDP figures from time to time.

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

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.