Diaz was willing to give up his presidency, but apparently not to Madero. Diaz imprisoned Madero on election day. Madero broke out and escaped to Texas, where he published his “Letter From Jail” — a manifesto for suffrage and term limits.

In this letter, the hint of agrarian reform and socioeconomic changes was enough to start the Mexican Revolution and seat him as the new president in 1911. While his presidency was a failure, his principles lived on.

After a bloody revolution from 1910- 1921, Mexico started implementing many of Madero’s suggestions, including free land distribution to peasants and constitutional social rights. These changes helped Mexico’s GDP grow sixfold between 1940-1970.

Nearly 100 years after Madero’s pen spurred economic and political change in Mexico, a second “Mexican manifesto” was published, and we have a chance to get in on Mexico’s revolutionary growth.

Studying the Subtleties of Obrador’s Manifesto to the People of Mexico

On July 29, 2009, disenfranchised former presidential candidate Andres Manuel Lopez Obrador drafted Manifesto to the People of Mexico.

The 2006 presidential election in Mexico was a brutal, down-to-the-wire fight. In fact, many Mexicans still don’t recognize the current president, Felipe Calderon, as the legitimate leader of Mexico. Obrador contested the results and even ends his pronouncements — including the Manifesto — with the sign off, “Andres Manuel Lopez Obrador, Legitimate President of Mexico.”

The left-leaning Obrador continues to mock and fight with supporters of Calderon, as well as the president himself. In his manifesto, Obrador slams Calderon’s handling of this economic recession. But there is another message articulated in this document — one you need to familiarize yourself with.

He writes, “It is crucial to continue creating alternative networks of information to break our enemies’ manipulation of the media. It should be borne in mind that the very instrument of domination that the oligarchy uses is through controlling television, radio and the press.” This simple paragraph is the third of five changes he claims the Mexican people need to fix their political and economic systems. It’s also a giant opportunity for us.

If media control goes back to the people of Mexico as Obrador suggests, it will do so in one of two ways: dissolving the current media outlets completely or restructuring them.

Dissolving television, radio and newspapers as they stand today would probably be a disaster. In today’s modern world, the demand for information is incredible.

Restructuring, however, would take only a few small tweaks and could help drive Mexico’s economy out of this recession.

While the current government does have a large amount of influence on media, it operates in a pseudo free market system. Many of these outlets — TV and radio stations, newspapers, and even international press agencies — are publicly traded.

Restructuring would lead to billions of pesos pumped into these organizations, which would push share prices much higher. Even the possibility of spin-offs would create moneymaking opportunities.

Source: How Mexico’s Second Manifesto Could Pay You a Fortune

Good day… And happy Thursday to everyone! Hope everyone made it through the ‘hump day’ with no worries. We started the morning here with rainshowers, but it ended up being a beautiful afternoon and evening. Currency markets were similar to the weather here, as most currencies started Wednesday in the loss column vs. the US$, but rallied as the day progressed. The dollar had strengthened over the past couple of days due to ’safe haven’ demand; but a surprisingly strong durable goods number (ex autos) combined with an ‘all clear’ signal from President Barack Obama had investors moving back into riskier assets. The commodity based currencies also got a boost as China signaled it would maintain an accommodative policy, easing speculation that the Bank of China would try to rein in bank lending. Lots to cover today, so lets get right to it.

Durable goods orders for June were released yesterday morning, and the overall number actually showed a pretty dramatic drop of 2.5% compared to the month prior. But the overall number includes automobiles, and with many of the big 3 automobile plants shut down for part of June, the markets were focused on the number ex transportation. Orders for durable goods, excluding automobiles and aircraft unexpectedly rose 1.1% in June following an adjusted .8% rise in May. The ex auto number was strong enough for some to reason that companies would have to start boosting output in the coming months. While the 1.1% jump in orders is nice to see, the overall drop was pretty dramatic, and the auto sector makes up a large percentage of overall output for the US.

Just after noon the Fed’s Beige book survey of economic conditions was released. The report said the pace of the US economic recession slowed or stabilized in most areas of the country and pointed to a protracted period of weakness as the economy transitions to recovery. The Fed said labor markets across the country were ‘extremely soft’ and wages and compensation were steady or falling in most areas. Not the rosiest of pictures for the economy, but not overly negative either.

The nation’s #1 cheerleader was out in full force yesterday afternoon, as President Barack Obama defended his administrations policies during a speech in North Carolina. President Obama’s poll ratings have slipped as unemployment continues to be a drag on consumer confidence. So he took a break from pushing his health care reform to defend his economic policies, saying he had helped avert an economic disaster as the US economy was in a “freefall”. He stated that the US “may be seeing the beginning of the end of the recession”, and that his stimulus plans had “helped stop a recession from becoming a depression”.

The British pound was one of the biggest gainers vs. the US$ yesterday after a report showed UK house prices rose in July for a third consecutive month. Another report showed the average cost of a home in the UK rose 1.3%. The pound will probably end up in positive territory vs. the US$ this month for a fifth consecutive monthly gain. The rally is a relief for pound sterling investors as the currency dropped more than 26% vs. the US$ last year. A Standard Chartered PLC analyst predicted further strengthening for the pound sterling in a report released yesterday. The analyst stated that the US$ is in a multi-year downtrend, and the pound will likely push up to $1.75 by year end.

But there is still the question of deficits in the UK. The BOE was one of the first central banks to institute ‘quantitative easing’ policies, and many are looking for them to be the first to stop the program. With the UK housing sector stabilizing, officials will likely pause the asset-purchase program which was set up to lower borrowing costs. But the UK is still going to have to deal with a record deficit, similar to the problems facing the US. The UK Treasury said it will sell a record 220 billion pounds of debt in the year ending March 2010 to offset falling tax revenues and increased government spending. Again, good news for the pound in the short term, but the storm clouds are still gathering.

Positive news out of Europe this morning has helped keep the Euro moving up in early trading. European confidence in the economic outlook increased more than economists forecast in July, as an index of executive and consumer sentiment climbed to the highest reading since November. But the economic recovery in Europe is still very fragile, as evidenced by another report which showed retail sales fell for a 14th month in July. Unemployment in the Euro region continues to be a concern, with the unemployment rate expected to reach 12 percent in 2010.

Both Morgan Stanley and BOA/Merrill Lynch told investors to sell the dollar vs. the Euro in research reports released yesterday. Morgan Stanley said investors should sell the dollar against the Euro, Norwegian krone, and Canadian dollar as the global outlook improves. “As the outlook continues to improve, we believe that currencies with strongest ties to the global growth cycle will outperform at the expense of the US dollar,” a currency strategist at Morgan Stanley wrote in a note to clients. BOA raised its forecasts for the euro predicting it would rise to $1.50 by year end. The report highlighted the diversification of reserves as a key driver of the Euro. The euro is predicted to continue to gain vs. the US$ as central banks diversify reserves into Euros from US$ as the US government is debasing its currency through its program of printing money to buy assets such as Treasuries.

One currency which hasn’t been performing well vs. the US$ recently is the Swiss Franc which is one of the few currencies to drop vs. the US$ over the past month. This is exactly what the Swiss National Bank has been trying to accomplish, as they have spent as much as $32 billion since March to keep the Swiss franc from appreciating. The SNB sold the franc and cut interest rates on March 12 to stem the currency’s gains. The Swiss continues to be a popular choice for investors, but problems with Swiss banking and the government intervention will likely keep the Swiss franc from rallying dramatically. However, as Chuck has pointed out several times in the past, no central bank (not even the Swiss) has enough money to fight the currency markets. The markets will eventually win out, and the longer term prospect for the Swiss franc is still positive. It is just that we feel there are other currencies which have better prospects in the near term.

Norway is one such currency. Norway’s central bank will likely be one of the first among the world’s richest economies to begin raising rates as the global crisis shows signs of abating. Inflation in Norway is likely to increase past the Norges Bank’s target, increasing pressure for Norway’s central bank to hike rates. The markets are beginning to price in an increase in rates at the beginning of next year as the Norwegian economy starts to heat up. Oil revenues, and a conservative fiscal policy helped to soften the impact of the global economic crisis, and Norway is now set to be one of first European economies to recover. Retail sales in Norway were up 2.6% in May since March and underlying inflation accelerated to an annual 3.3% in June, the fastest pace in eight months. The housing market in Norway is also pushing the recovery, as property values rose 5.3% in the three months ended June, the second quarterly gain.

Norway’s neighbor, Sweden, is another currency which has been performing quite well vs. the US$. The Swedish krona is second only to the Australian dollar in return vs. the US$ over the past week, and is among the top three currencies this month. Sweden’s krona is benefitting from a jump in exports as Sweden’s trade surplus almost doubled in June as exports to Europe and the US increased. The Swedish krona has also benefitted from recent IMF support of the Baltic region, where Swedish banks are heavily exposed.

The Australian dollar continued to climb overnight, and is the best performing currency vs. the US$ in the past week. Investors are betting that the Reserve Bank of Australia will be one of the first central banks to start raising rates. With the US Fed keeping interest rates near zero, investors are likely to search for yield, and interest rate differentials will push the AUD$ higher. We saw a similar pattern back in 2003, when the AUD$ rallied over 30% vs. the US$ on interest rate differentials. Australia’s economy unexpectedly grew in the first quarter, and recent rhetoric from RBA Governor Stevens suggests the start of a tightening cycle sooner rather than later.

Brazil’s real continues to be a strong performer and is expected to strengthen to 1.8 per dollar by year end according to JPMorgan Chase & Co. The real will strengthen due to faster economic growth and higher demand for commodities according to JPMorgan. The currency will benefit from a stronger trade surplus and increased foreign investment. In news released yesterday, China Development Bank Corp, the state run bank for public works projects, stated they plan on opening an office in Rio de Janeiro next year, one of its first branches outside mainland China. Close ties with China will continue to benefit Brazilian exports of commodities. The Brazilian economy will expand at an annualized pace of 4.2% in the second, third, and fourth quarters this year according to research by JPMorgan.

A great way to invest in 4 different currencies which should appreciate as the global recovery takes hold is our Global Power Shift Index CD. This newest CD offering combines the currencies of Australia, Canada, Brazil, and Norway; all countries which are perfectly positioned to take advantage of commodity price increases. The CD is available with 3 or 6 month maturities and a minimum deposit of $20,000. Call the desk for details!

Currencies today 7/30/09: A$ .8248, kiwi .6528, C$ .9213, euro 1.4061, sterling 1.6485, Swiss .9188, rand 7.7974, krone 6.2331, SEK 7.4434, forint 190.56, zloty 2.9674, koruna 18.1791, yen 95.09, sing 1.4437, HKD 7.7500, INR 48.3575, China 6.8323, pesos 13.2083, BRL 1.8935, dollar index 79.273, Oil $64.01, 10-year 3.70%, Silver $13.425, and Gold… $932.88

Chris Gaffney

Source: Dollar Rally Peters Out

Yet here at Notes we remain cautiously bearish. Why? Because it is our humble opinion that this remains a bear market rally, impressive as it is. Gluskin Sheff’s David Rosenberg says the rally lacks three key ingredients:

1. Leadership
2. Quality
3. Volume

History is littered with such bursts of euphoria. Probably the most infamous is the bear market rally of 1930. Stocks recovered strongly following the November 13, 1929 low. Wall Street became wildly confident that the worst of the crash was over. And for a time the bulls were dead on. From a low at 199 on November 13 the Dow rallied to a high of 294 in April 1930 – up 48%. By the end of the year, the Dow was down to 158. And by July 1932 it had plunged another 41 points.

Believe it or not, this rally occurred in the absence of an economic recession. Although it is largely overlooked today, the U.S. economy held up following the October crash. The rout in stocks was at the time considered to be an isolated incident – a direct consequence of excessive speculation and nothing more.

It is sobering to consider that few thought during the first half of 1930 – when the business curve of the Harvard barometer was almost horizontal and therefore did not signal a recession – that a devastating depression lay ahead.

The lesson from history is that depressions – or bear market rallies – aren’t avoided simply because they are not predicted. Nor are stocks always a bargain because they are “cheap.” At its November low, the Dow sold for only 10-times earnings; it had peaked at 15-times earnings in early 1929. But try telling investors who bought into the Dow in November 1929 that they’d got a bargain!

We bring this up not because we believe that history is destined to be repeated, but because we believe it often rhymes. And it would be foolish not to revisit the lessons of 1930 at this juncture – one year after our own “great crash.”

The casualties of the bear market rally of 1930 included some of the best investing minds of the era. Legendary investor Jesse Livermore lost all his money in the 1930-32 decline and eventually ended his own life. And a reclusive John D Rockefeller issued a statement that contained these fateful remarks:

In the ninety years of my life, depressions have come and gone. Prosperity has always returned, and will come again… Believing that the fundamental conditions of the country are sound, my son and I have been purchasing sound common stocks for some days.

Call us old fashioned, but we simply don’t believe that a secular bull market can last in a recessionary environment. And we firmly believe that the recovery drum has been banged a little too hard by the mainstream media.

To wit, we strongly recommend that Notes readers spend some time familiarizing themselves with the recent “fact finding” study on the depths of the current recession by two of our favorite underground sources, Tyler Durden of Zero Hedge and David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates.

What follows is a very quick-and-dirty rundown of Durden and Rosenberg’s case.

1. The US consumer makes up 70% of US GDP, yet retail sales and wage-based income are steadily declining. And consumer deleveraging continues despite efforts by the Fed and the Obama administration to stem the tide.
2. The business outlook remains bleak. May business sales decline a hefty 18% year-on-year. This is clearly a recessionary signal. Other key business outlook indicators, such as the Philly Fed’s Business Outlook Index and the MAPI Business Outlook Index, are pointing down.
3. There is no reason to believe that an inventory bounce is in the works. In fact, the decline in UPS package volumes (-4.7 year-on-year in June) show that inventory weakness is accelerating.
4. The recent falloff in jobless claims is due to seasonal factors, not an improvement in the economy. “Official” unemployment is under 10%. But the U-6 data (which includes the so-called “underemployed”) is 16.8% – 6.5% higher than a year ago. A consumer driven recovery in this environment is highly unlikely.
5. Housing is still in the ditch. It will take at least five years to mop up excess inventory. This means house price deflation will be a secular trend. This will continue to act as a drag on the banking sector and impair credit quality.
6. There is no top-line business growth. Better-than-expected earnings in the second quarter were achieved by cost cutting, which will have a negative, not a positive, impact on the economy. Stock holders will eventually want to see revenue growth. When this fails to happen, stock prices will come under pressure.
7. State revenues are imploding. The Rockefeller Institute of Government predicts a slide of 20% in the second quarter. California is the first state to go bust. It won’t be the last.
8. President Reagan’s low-tax lesson has been forgotten. There are no fewer than three tax increases planned for upper-income households by the Obama administration. We are looking at a top marginal rate jump of 10 percentage points by 2011. This will bring the top rate to 45%.
9. Although credit spreads are tightening, S&P downgrades of corporate bonds hit records in June. And credit conditions for small companies remains incredibly tight.
10. The overall inflation rate is currently running at -1.4% year-on-year. This is the lowest rate since 1950. There is no threat of real inflation until the excess slack in the economy is absorbed. [Note: We disagree with Rosenberg and Durden here: we see a clear-and-present threat of inflation down the road.]

U.S. crude oil for August delivery fell 49 cents to $61.05 a barrel by 1745 GMT after hitting a low of $60.29 a barrel. London Brent crude slipped 43 cents to $62.66 ahead of the August contract’s expiry later on Thursday.

The losses come amid lingering worries about global energy demand, contracting for the first time in a quarter century under the weight of the economic recession.

The global slowdown has cut world oil demand by as much as 2.5 million barrels per day, according to the International Energy Agency.

Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, added that recent government data showing increases in U.S. refined fuel supplies added to bearish sentiment in the oil market.

The U.S. Energy Information Administration said on Wednesday that gasoline and distillate supplies rose last week despite increased domestic refining activity, while crude inventories dipped more than expected.

Oil’s losses were limited by news that China, the world’s second largest energy consumer, saw surprisingly strong growth of 7.9 percent in the second quarter, fuelled by state spending and bank lending.

In the United States, data showed new jobless claims fell to their lowest level since January, but the Labor Department was keen to emphasise an unusual pattern in automotive layoffs had amplified the drop.

JPMorgan and Chase & Co reported a 36 percent rise in quarterly profit, topping Wall Street forecasts. But the bank warned that credit quality in consumer mortgages and credit cards was deteriorating faster than expected.

Also highlighting the ongoing problems facing the world economy is the looming bankruptcy of CIT Group Inc , a lender to hundreds of thousands of small and mid-sized U.S. businesses, after bailout talks with the U.S. government fell apart.

LONDON, July 16 (Reuters)

The Short Sale Is Selling Everyone Short

The U.S. has an excess supply of housing. What’s more, it shows no sign of decreasing. And in this case, the culprit isn’t just overextended homeowners, but the banks, too.

Case in point: I’ve spent the past two weeks shopping for a house that I can use for investment purposes. What I’ve found is that while there are many bargains available, few will actually materialize.

The problem is that true sellers – those unencumbered by losses and not just intent to ditch the property at almost any cost – cannot sell their homes because they face competition that they simply can’t beat.

That competition is coming from distressed sellers – those who are advertising “short sales.”

A short sale is a way of getting out of a mortgage without enduring the pain of going into foreclosure. So the seller basically agrees to sell the property at a lower price than the mortgage – i.e. at a loss. But the sale can’t proceed without consent from the lender. It’s then a matter of negotiating with the lender to figure out how much responsibility the seller has for the loss.

The trouble is, short-sellers are making an already bad situation even worse for the rest of us because they’re under the impression that they can simply walk away from a property as long as they’ve found a buyer. So they list their properties at often ridiculously low asking prices, thus depressing the market around them.

But, wait… that’s good for buyers, isn’t it? Not so fast…

The Short-Sale Saga

Once a short-seller set a price and gets offers, he takes them to the bank, which then decides if it wants to eat the difference between the loan amount and the amount offered by the buyer.

In most cases, the banks come back with a different, higher amount – and then the circus begins.

The seller naturally balks at the higher price because he wanted less burden – i.e., a free lunch).

The buyer balks because the price is much higher than the listing price – which was a joke to begin with.

By the time the process churns through, three to four months have passed because the bank is obviously in no hurry to take the hit on its books. Moreover, it’s in no rush because the government is subsiding its operations and providing cheap money to lend.

And who’s the fall guy from this fiasco? The real sellers.

A Three-Year, $225,000 Price Depreciation

As a result of short-sellers squashing their market, true sellers have to lower their asking prices to reflect what shows up on the Multiple Listing Service as the average price for the area.

And you guessed it… these average prices include grossly mispriced short sales. Sales that aren’t based on the true value of the market, but the whims and wishes of a seller who got in over his head.

For example, one place I looked at was listed at $300,000 just three years ago. Today’s price: $75,000.

Not only that, the carrying costs are high because it’s a condo that comes with high monthly homeowners fees and property taxes, which were based on higher assessments.

A similar property sold a few weeks earlier. It was a “short-sale,” listed at $75,000. The bank had returned with a counter-offer to the buyer of $150,000. The home eventually closed for $135,000. The seller was lucky. The buyer must really have wanted the place. But it still took three months for the process to close.

And don’t expect any help from the realtors listing the property either. Sure, they’re doing it in hopes of making sale, but they won’t spend much time on it – and sometimes won’t even respond to a short sale.

Why? Because the prices are low… they’re artificial prices that don’t reflect the home’s real value… and the short sale can take months to consummate. Not only that, it will often result in a lower commission because the bank will ask all parties for concessions.

And if the short-seller has moved out and is renting the place, tenants rights can interfere with the sale, with many paying below-market prices and not compelled to keep the place in showable condition, or be available for a showing.

Here’s the deal…

The Bargains Are Out There… But You’ve Got To Work For Them

A low selling price means absolutely nothing in this market if the home is in pre-foreclosure.

The better deals are available on “bank-approved prices,” which means the properties are already in foreclosure and the bank has already agreed on a price.

And of course, the best possible price will come from a non-short-seller who is forced to compete with short-sale prices – i.e. artificial competition.

And remember, while there are bargains available, there’s no such thing as a free lunch. Getting what you want requires more work than the media lets on.

And as for U.S. housing prices… they’re going to stay low until the real selling prices are determined. And that’s not happening yet.

Karim Rahemtulla

Source: The 800 Pound Gorilla on the Housing Market’s Back

U.S. crude rose 49 cents to $71.76 a barrel by 1515 GMT, having topped $72 earlier. London Brent crude gained 45 cents to $71.51 a barrel.

Nigeria’s main militant group MEND said Friday it had attacked a pipeline operated by Italy’s Agip , close on the heels of previous attacks on facilities operated by Royal Dutch Shell and Chevron . Together, the attacks have cut at least 133,000 barrels of daily output.

Rebels in Nigeria, the world’s seventh-largest oil exporter, have been carrying out attacks on the oil industry for years in what they claim is a struggle aimed at spreading the region’s energy wealth to the poor local communities.

Oil prices also got support from political turmoil in Iran, the world’s fifth largest exporter, in the wake of its presidential election.

“We will see support continue to come from Iran and Nigeria. There is no immediate supply threat from Iran but in Nigeria, (there) is an actual physical disruption,” oil analyst Olivier Jakob of Petromatrix said.

Analysts said gains on Wall Street, fed by optimism that the worst of the economic recession was over, encouraged commodity buying by brightening the outlook for demand.

Oil prices have nearly doubled since February on signs of a potential economic recovery but the pace of the rally has sparked concerns prices are not well supported by fundamentals.

Adding to optimism in oil markets, the U.S. Transportation Department said on Friday Americans drove more miles in April than they did a year earlier, marking the first monthly rise in U.S. highway travel in more than a year.

NEW YORK, June 19 (Reuters)

Poor Obama. He seems like such a likable fellow. He would probably make a good college president. Or a good butcher. You’d enjoy going into his shop to buy cutlets.

But now the poor man finds himself in what has to be one of the tightest spots in history. At least in economic history. The crash of ’08-’09 clipped stock market investors for half their nominal wealth. The bear market in property has put one out of every four homeowners underwater. And now the recession/depression threatens to knock the stuffing out of the rest of the economy.

How can he get us out of this jam? He hasn’t a clue. So, he turns to his advisors… his hacks… his pollsters and his hangers-on…

…and what do they come up with?

“U.S. deficit four times last year’s record,” comes the press report. “Federal government will borrow almost 50 cents of every dollar it spends this year.”

This news would have taken our breath away. If we had any breath left. But after so many wonders, each one more breathtaking than the last, our lungs are all squeezed out. We can’t even give an audible sigh. Hold a mirror up to our nose and you would think we were dead.

You’ll recall that President Obama announced that he had found budget savings of $17 billion. We were exhaling on that for a moment until we realized that it represented less than 36 hours’ worth of federal spending. Then came news a week later that instead of cutting the budget, the latest estimates showed it going up by some $89 billion.

Let’s face it, at this point $89 billion is chicken feed. Here at The Daily Reckoning we carry that much in our wallet. We pass it out to subway bums and use it to tip cab drivers. So, we’re not about to get excited about such a trivial amount.

But coming on top of a budget deficit already estimated at four times the record deficit set last year…and we begin to think of straws and camels.

The idea of spending twice as much as you earn should take even a camel’s breath away. An ordinary man…hearing that fact…would feel like breaking the glass and pulling the alarm. “You can’t do that…you’ll go broke,” he would say. Basic arithmetic reveals the trap. In one year, you’ve built up debt equal to all of next year’s revenue. In two years, you’ve got debt of 200% of annual revenues. In 10 years, you’ve got debts equal to 1,000% of your annual receipts. Let’s see…say you only pay 5% interest…then, the interest alone takes up HALF your revenues. What creditor would lend you money?

The feds have their own projections, of course. According to them, they won’t continue this hell-for-leather spending much longer. Their estimates show the deficits declining in future years. Ten years out, they show a fairly modest total of $7.1 trillion in accumulated deficits.

It is a measure of how breathtaking the financial news has been that $7.1 trillion can in any way be regarded as modest. It is half America’s total GDP. It is also a measure of how out-to-lunch the federal estimators are. Their projections imagine a “worst of worlds” that would be a “best of worlds” to most people. In the Great Depression, national output went down by some 30%…and continued for a decade (depending on how you figure it). In Japan, the on-again, off-again slump has gone on for 19 years. Yet, the official guess is that this downturn in the US will take output down by only 1.2% and that it will be over in a few months…with a return to growth of 3.2% in 2010.

No one knows how bad it will become. The last report showed GDP declining at a 6% rate. And our friend Nassim Nicholas Taleb says it will be “vastly worse” than the ‘30s.

But give a man enough education and he’s ready to believe anything. He can even convince himself that such reckless spending is a “stimulus” effort…that it merely “replaces” spending that would have been done by the private sector (if the private sector were stark raving mad)…and that it will bring about a “recovery” in the entire economy.

You could even glance at the latest financial news and say: “Look…it’s working!”

The Dow lost 155 points yesterday. A minor setback in what has been an agreeable interlude. Oil, the dollar, and gold stayed about where they were yesterday.

Our thoughts return to Mr. Obama. He is surely the man of the hour. He is the fellow historians will take for the leading man. Will he be a tragic hero? A comic hero? One of America’s greatest presidents? A black Lincoln? A Roosevelt with two good legs?

Like Lincoln and Roosevelt, he is a man with no apparent convictions that will stand in his way. Perhaps he is just the man the U.S. of A. needs – a man capable of bankrupting the nation with a smile.

Yes, Dear Reader, the ‘great man’ always seems to come along when you need him. Longtime Daily Reckoning readers will recall our theory:

After the Berlin Wall came down… America had no enemies worthy of the name. She had a monopoly franchise on the world’s money – the dollar was the undisputed queen of the planet’s reserves. And she had a monopoly on military power too – the undisputed king of the hill, with a Pentagon budget nearly as large as all other nations’ military spending put together.

But nature abhors a vacuum and detests a monopoly. Lacking a suitable challenger, America had to become her own worst enemy. Lacking a rival who could destroy her, she had to destroy herself.

And so, when Americans went to the polls in November of 2000, they elected a president who was up to the job: George W. Bush. Eight years later, the Clinton surpluses had turned into the biggest deficits ever…an immense bubble had impoverished the middle class…and the country was engaged in two unwinnable, unnecessary, and hugely expensive wars.

Mission accomplished!

But it’s not over. The millstones of history may grind slowly…but they grind exceedingly fine… The American empire is clearly overstretched and over-indebted. If it is to save itself, it should scale back immediately…cutting the Pentagon budget in half, for example, and eliminating all unnecessary expenses (which is most of them). Instead of spending $3 trillion, it should spend…say…$1 trillion, and run a surplus.

What about the depression, you might be wondering. Isn’t this the time to increase government spending, rather than decrease it? Ah…if you are even asking the question, you are the victim of a dead economist. Keynes’ theory was that the state should run contra-cyclical surpluses and deficits – to offset the ups and downs of the business cycle. But that is too soggy a bog for us to trod in today. Instead, we will skirt it with another of our dicta:

People come to believe what they must believe when they must believe it.

When an empire is new and fresh and growing…people believe in saving, hard work, and small frugality.

When an empire is old and decaying…they think the government should spend “whatever it takes” to take care of them. This attitude helps destroy the empire…thus making room for the next one.

But if America really wanted to protect its wealth, its power, and its position in the world, it should fight the depression in an entirely different way. Instead of bailing out failed businesses it should let them go bust. Instead of coddling the executives who mismanaged their companies, it should turn them loose. Instead of shoring up reckless banks, it should help knock them down.

And instead of spending money on stimulus programs…it should give money back to the taxpayers so they can stimulate the economy, or not, as they choose. Taxes should be cut in line with government spending. This would boost savings, reduce debt, and… gradually…increase investment and consumer spending too.

But that is not the road Americans have chosen. Instead, they found a president willing to go along with history. Instead of scaling down, he is scaling up. Instead of reducing America’s indebtedness, he is increasing it. Instead of going for safety, he’s going for broke.

No one knows how this will turn out, of course. None of us get to read the history books before they are written. But our guess is Mr. Obama will emerge from the tomes as another ‘great man.’ Doing history’s dirty work…he is continuing the destruction of America’s monopoly position on money and power.

Until tomorrow,

Bill Bonner

Source: Is America Overstretched?

The Labor Department’s unemployment figures were the most anticipated data of the day, and they came in gloomy indeed.

Labor said that, in April, there were 539,000 jobs lost, while the unemployment rate skied to 8.9%, the highest level in 26 years. Dreadful by any standard, yet it was an improvement, representing an easing in the pace of massive job destruction that had averaged 680,000 over the previous five months.

In addition, job losses for February and March were revised higher by a combined total of 66,000.

“It is a sobering toll,” said President Barak Obama. “We’re still in the midst of a recession that was years in the making and will be months or even years in the unmaking; and we should expect further job losses in the months to come.”

“While the April employment report provides glimmers of hope, obviously, conditions are going to have to brighten a lot more to make that forecast a reality,” wrote Stephen Stanley, of RBS Securities. “This looks very much like an inflection point, and the corroborating evidence … all suggest that the pace of layoffs is finally beginning to abate.”

But analyzing the consequences, Ian Shepherdson of High Frequency Economics wrote that, “Soaring unemployment is depressing wage gains,” and that is “seriously bad news because without wage gains people can’t deleverage unless they cut spending deeply.”

Meanwhile, across the pond, the European Central Bank cut interest rates to an unprecedented low of 1%.

Source: Dollar Whacked

The suits on the Street ask themselves these questions every day. They don’t realize that these superpowers aren’t the only places you can make big money.

Indonesia has the world’s fourth largest population, over 200 million people, but it ranks no. 16 in GDP purchasing power. Poverty and disease plague this sleeping giant. That’s why the median age of the country is just 28 years old.

The country has made some progress of late through the presidency of Susilo Bambang Yudhoyono. Elected in 2004, Yudhoyono was an already important and popular figure in Indonesia after a few stints in the first couple cabinets of the fairly new democracy. He has the rank of General and is a very influential military leader worldwide.

He continues to stay popular and will, in all probability, get reelected later this year. Yudhoyono is not only a military-focused politician, he’s also an economic visionary in a country that desperately needs that kind of vision.

In just his first term, he’s already signed an important trade agreement with Japan, opening his country’s enormous population to the world’s second largest economy.

Barack Obama recently invited Yudhoyono to the White House to discuss the U.S.’s role in helping developing countries during this economic recession. The two met again a few weeks later at the G-20, which Indonesia recently joined.

All of this prestige helped Yudhoyono make Time’s 100 Most Influential Persons list this year. But it’s also helped segments of Indonesia’s population obtain some new G-20 benefits.

Even with all of the international help, Indonesia may not ever become a superpower. But the country does provide unique opportunities…if you know where to look.

The Growth Story of the Century

One of the most exciting growth industries in the Far East is Internet service providers. According to InternetWorldStats.com, 73.8% of Japanese and 76.1% of South Koreans are online. Even about one in every four Chinese citizens now has Internet access…

Indonesia is trailing in the region with just 10.5% of its population online. Here’s our growth opportunity! In 2000, only two million Indonesians had the Internet. That number is set to reach 25 million this year.

But this growing ISP industry is only part of the story…

While Indonesia continues to struggle with some basic luxuries that the Western world takes for granted — such as cable television and wireless Internet access — its citizens do have cell phones. In fact, around 58% of the population already has a cell phone subscription — that’s over 130 million subscriptions.

Even with so many current subscribers, growth hasn’t slowed at all. The mobile phone industry is still growing at a 36% clip annually.

The reason I bring these two industries up together is because of a unique opportunity. I found a company with a 46% market share of both the broadband Internet and the cellular industries. That’s the top spot. This is like finding Ma Bell at the turn of the 20th century — minus the anti-trust issues.

You see, this company’s largest investor is the Indonesian government. It’s a rock solid company that I’ll be recommending early next week to my Lifetime Income Report readers.

Sincerely,
Jim Nelson

Source: A Second Chance to Buy AT&T at the Turn of the Century

According to the latest S&P/Case-Shiller Home Price Index, U.S. home prices fell an annualized 18.6% in February, compared with February 2008 – and a 0.4% improvement on the 19% drop in January.

Some have speculated that this news means we’ve hit the bottom and the market will now begin to trend upwards again.

Not so fast. Those folks must either be eternal optimists or very shortsighted. A 0.4% improvement is one of those “you have to start somewhere” pieces of good news, not a reason to celebrate.

The truth is, average home prices are still down 30.7% from the mid-2006 peak and are running at levels last seen in Q3 2003. We’re still a very long way from a solid housing market. And given that the S&P/Case-Shiller index reports figures from the 20 largest U.S. cities, there’s no doubt that we need to see more than just one month’s worth of evidence before forming many conclusions here.

Here’s what we can say, though…

Three Housing Market Headwinds

If you’re wondering whether this housing news is the first sign of some long-awaited stability for the housing market, or just an anomaly, consider this…

While nine of 20 cities in the index showed a price improvement in February and at least provided a glimmer of hope, remember that a prolonged decline often means the market requires a longer period of consolidation before it breaks higher over the long-term. Moreover, the market is fighting a fierce, triple-pronged headwind…

• Unemployment: With U.S. companies continuing to lay off workers in a desperate cost-cutting bid, this is hardly the kind of fertile environment that will kickstart enough home sales to cut into the bloated excess supply, drive prices higher, and improve the market. Unemployed Americans won’t even be thinking about buying new houses, never mind the struggle they’d face to get a decent loan or mortgage rate. As the job market goes, so goes the housing market.
• Confidence: The current economic and real estate climate has eroded confidence among would-be homebuyers. According to the Conference Board, the number of people who said they plan to buy a home in the next six months sank to a 26-year low in March.
• Excess Supply Of Housing: With America in the grips of a recession, jumping into a beleaguered housing market is low on Americans’ priority list. Existing home sales dropped by 3% from February to March and the U.S. Census Bureau said this week that the number of vacant homes hit a record 19.1 million in the first quarter. Plus, mortgage defaults and foreclosure rates are rising.

So expect to see home prices drift along rather aimlessly for now, while the punch-drunk market drags itself back together.

The Housing Market’s Silver Lining

Now for the housing market’s silver lining…

• First, although the U.S. still has way more houses for sale than demand calls for, the inventory of new homes for sale is currently 311,000 (10.7 months of supply) – the lowest number since 2001.
• Second, with the average 30-year fixed mortgage rate still holding steady at around 4.8%, it represents an attractive entry point for buyers. However, with the Fed having spent many of its bullets to drive the rate down already, it might not dip much lower. If Ben Bernanke and his fellow bankers make this point, it could tempt would-be homebuyers into the market, for fear of missing out on lower rates if they don’t.
• And finally, there are some pockets of strength across the U.S. – in some of the hardest-hit areas, too. For example, Business Week reports that home sales on Florida’s Gulf Coast, Inland Empire in Los Angeles, and the Las Vegas area jumped around 80% in February, compared with February 2008.

Moreover, the number of available homes in California tumbled from 15.3 months worth a year ago to 6.5 months in February is a good sign in terms of clearing the market and driving up prices. However, this may be the result of speculators or first-time buyers, who don’t put a home on the market in return. The sell-then-buy equation remains very tricky and a lengthy process in many areas.

One measure that California has passed in order to boost its market is a $10,000 tax credit to anyone who buys a newly built home.

Finding The Light At The End Of America’s Long Real Estate Tunnel

As Robert Shiller, economics professor and co-creator of the Case-Shiller index, states, “The market is still doing badly. But there’s always light at the end of the tunnel.”

In other words, while depressed prices, record low mortgage rates, and government incentives worth $8,000 in tax credits for first-time buyers may spark some buying, the current recession, high unemployment, and tight lending conditions mean we’re probably still a long way from the end of that tunnel.

However, when recovery does eventually take hold, it may be perennially popular areas that have suffered the most during the bust – like California, Florida, and Nevada – that will lead the way higher.

Source: The U.S. Housing Market: Is it Time to Start Buying Real Estate?