Baltimore — (TFN): I don’t know whether to laugh or cry. Down in Chattanooga, Tennessee, a four-year-old boy managed to grab a beer, walk out his front door and break into a neighboring house to steal Christmas gifts.

True story. But it gets better.

Inside of one of those gifts, was a girl’s dress. The youngster donned the new attire and continued his late-night spree. His mom tells us it was all in an attempt to get in trouble so he could spend a night in jail… with his old man.

Smart kid. He’s going to have a great career as a banker some day.

Although the names and the ages are different, it’s essentially the same story on Wall Street and in Washington. Drunk on greed and wearing a stolen cloak of authority, our elected officials and the pigs that feed at their feet have stolen from you and I once again.

Remember way back when in the days when the financial collapse was still fresh on our minds? Do you remember the pundits warning that the federal government’s decision to buy a massive stake in Citigroup was a disaster in the making?

Washington poo-pooed the notion, saying it has to be done, right now, right here. The consequences of the future don’t matter today.

Guess what… the future is knocking and it’s not wearing a frilly little dress.

In an effort to get out from Uncle Sam’s massive shadow, the boys at Citigroup decided to offer up more shares of the company and even managed to convince Geithner and his gang at the Treasury to unload their shares.

Turns out, the free market wants very little to do with owning a stake in Citigroup. It’s over a year later and the bank is still just as financially repulsive.

With news like this, does anybody really believe the notion of economic recovery is sustainable? Not me.

Judging by the quickly strengthening dollar and the drastic drop in gold prices today, the situation across the globe shares similar pessimism. When the greenback looks like the best place to park your money, you know there is trouble brewing.

That reminds me. Want to know the best Christmas gift this season? Cash. It’s the only thing going up in value these days.

You can thank your leaders in the nation’s capital for that.

*** Actually, that is an oversimplified view. Of course cash is not the only thing going up in value. Put options are soaring, too. But so is one tiny, overlooked segment of the commodities market.

During the couple of summers I spent as a fishing guide, one of my good friends was a real-live Alaskan lumberjack. After a couple of tours in Vietnam, the woods were the only place he felt “comfortable.”

Although he is the foulest man I ever met, he has great insight. One day while we were tossing streamers in front of migrating silver salmon in Alaska’s Tongass National Forest, he looked around and said, “Yep, we’re surrounded by millions and millions of dollars.”

He went on to tell me North America’s forests aren’t worth much right now, but they would be as soon as “those Asians” started buying. His words, not mine.

How right he was. I plan on calling him up this weekend to ask if he heard the news out of Shanghai. China’s largest city just changed its building codes and opened the door to wood framing.

Almost overnight, it opens the market to a construction industry that is half the size of our domestic market. And that is just one city.

As the housing market comes back to life (hopefully with a little bit of juice from Washington), we are going to watch timber prices soar. When it happens, my lumber-cutting friend will be onto to something very, very big.

But so will we. Not only did I just recommend a set of timber-related options this morning to TFN Strategic Trader readers, but the group’s publisher, J. Christoph Amberger, recently pulled the curtain on his latest research.

He recommends three unique ways to play the upcoming boom in the timber industry to Hot Stock Confidential members. It’s a down-and-dirty report you won’t want to miss.

You’ve got to read his report.

*** Finally, we got out of the natural gas markets just in time. After locking in gains of 400% on the first half of one play, 100% gains on the second half, 50% on a separate play and 56% gains on a third natural gas pick, the sector has turned around and shot right back up.

Thanks to word of a record withdraw for this time period, natural gas prices are on the rise. While we are still holding a couple of related plays and half of an original position, the plays are far enough removed from the effects of rising prices that we don’t have to worry.

But going forward, with natural gas prices on the rise once again, we are on the brink of yet another major opportunity. With word this week that Range Resources (NYSE:RRC) has nearly quadrupled its Marcellus gas production, we have all the proof we need to say the gas industry is in for a rough ride.

It’s simple supply and demand. Now that natural gas is all over the place, and far easier to pull from the ground than once estimated, the markets will continue to be oversupplied.

Even with today’s strong withdraw, storage levels remain well above five-year averages. I am convinced we will have yet another set of triple-digit winners on our hands in no time.

Jeff Clark (Casey Research):

In the short term, a catastrophic deflation is quite possible. But in the long term, extremely high levels of inflation are now inevitable. The situation is very serious. Gold is the best hedge against both of these things. The better part of your financial assets should be in gold, augmented by well-thought-out speculations. Doug Casey, November, 2009.

Doug Casey and the editors at Casey Research are very skeptical that we are experiencing any sort of economic recovery. In our opinion, too many economic indicators are based on faulty data and optimistic assumptions. Our research suggests that a recovery isn’t sustainable yet. And with that, we lack the foundation needed to support the rapidly rising stock markets.

Among the many reasons for our doubt is this standout:

Over the next two years, the so-called Alt-A and Option ARM loans face massive resets. Even with today’s low mortgage interest rates, most of these home loans, currently enjoying ultra-low teaser rates or pick-your-own-monthly-payment schemes, will see their monthly payments adjust higher – far higher. The result: loan losses and write-downs will balloon for banks, and mortgage holders will get hit with another wave of homeowner defaults. We just don’t see any way for the economy and markets to escape the fallout.

Even the Fed’s perpetual public smiley face can’t hide what’s happening. In their own statement last month, they said, “Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.” A clear and present danger remains in the system.

What does this mean for our favorite sector? Following the market lows in March, gold and gold stocks have, with some exceptions, mirrored the market’s moves both up and down. If the markets correct again, whether mild or severe, gold and gold stocks could get taken down as well.

There will come a point when gold stocks separate from the movements of the general markets, and we look forward to that day. But for now they’re still holding hands.

In the meantime, our view of the big-picture outlook hasn’t changed. Rising inflation and a falling dollar are baked in the cake. Price inflation follows monetary inflation, and governments around the globe have pursued an unprecedented and unsustainable policy of inflating the money supply. Monetary inflation + time = price inflation. It’ll come, and when it does, it will wipe out those who are unprepared.

But in the near term, current economic uncertainties mean heightened risk and call for caution. In other words, this isn’t the time to be aggressive with stock purchases.

So, how does one invest in this kind of environment? Is there a way to hedge your exposure against price fluctuations?

Yes! The secret lies in asset allocation.

Achieving good portfolio performance is possible without overexposing yourself to stocks. The strategy involves playing defense as well as offense.

The following tables compare the returns an investor could expect using different asset allocation models under three hypothetical market scenarios, and assumes a starting portfolio of $10,000.

      *All returns exclude commissions and taxes 

      *Cash return for 1 year of 1.55% based on use of money market account; higher rate possible with a CD, but access to your cash is restricted, and it involves fees and penalties for early withdrawal.

You can see that you’re giving up only 6.6% in gains in Scenario #1 by apportioning your portfolio in equal thirds vs. being overweight stocks. But if stocks decline while you’re overweight that category, as shown in Scenario #2, you stand to lose 16.8%.

If you don’t elect a defensively positioned portfolio at this point, and gold stocks indeed get sucked into the vortex of a general market sell-off, you’ll wish you had that extra $2,300 in cash – which buys well over 100 shares of Kinross at today’s price. And when KGC likely doubles in a couple years, as we expect, remorse may be knocking on your door.

By allocating your investments in a more defensive mode, you’re making a small sacrifice for possible profits over the next six months without sacrificing long-term returns.

You can continue to follow the thinking of the editors at Casey Research — and get specific recommendations for solid, secure gold investments — with an inexpensive subscription to Casey’s Gold and Resource Report. It comes with a free report called The Three Best Ways to Invest in Gold, and until December 18, you’ll get a free subscription to Casey’s Energy Opportunities — all for only $39. Click here to find out more.

It’s the same way for politicians. Give them some cash and they’ll have it spent in no time flat, even if they can’t find anything worth buying.

Take, for example, the infamous Troubled Asset Relief Program, TARP in informal nomenclature. Passing the $700 billion program was a matter of financial and economic life and death according to Washington.

They gave us the same panicky “must-have” arguments as a six-year-old in the toy aisle.

But once they got what they wanted, their “toy” sits unused in the corner. As I write, TARP has over $140 billion in uncommitted funds and $300 billion that has yet to be spent.

Yep, they really need that money, didn’t they?

But the story gets even better. Fully expecting a miraculous recovery by the end of this year, our policymakers set TARP to expire on the final day of the 2009. They figured Obama would certainly prop all 300 million of us on his shoulders and carry us to safety by year’s end.

Now that the economic situation is not nearly as rosy as Obama promised a year ago, Washington is crying once again how badly it needs the money. It’s just how little Johnnie cries and moans when little Janie plays with the toy truck he hasn’t touched in months.

Geithner and his team have hundreds of billions of borrowed money up their sleeves with few viable ways of spending it. But now that we are asking for the money back, they say they need it… at least through next October (definitely not through November elections).

Do we ever grow up? It’s like a bunch of kids playing with very expensive toys in Washington.

*** Have you noticed a lot of Washington’s “economic recovery” programs are up for renewal these days?

TARP, the housing stimulus and all sorts of unemployment benefits have been or will be extended. I’m surprised we haven’t seen the resurgence in Cash for Clunkers.

There’s even a bill that would tax Wall Street to the tune of $150 billion annually to help create new jobs. It’s called, get this, “Let Wall Street Pay for the Restoration of Main Street Act of 2009.”

All these extensions and new programs are a surefire signal that all is not grand in the economic world and Washington had absolutely no idea what it was getting itself into as it spent nearly three trillion dollars to supposedly prop up the nation’s economy.

With Congress continuing its reach into the chest of the domestic economy, its no wonder gold prices are hitting new records day after day. By the time Washington is done, nothing “American” will have any intrinsic value left.

But just as I said yesterday about investing in the dollar’s downturn, be cautious of jumping on the golden bandwagon. It could be trouble.

So far this year, gold’s Street value has increased by 32%. It’s a strong gain when compared to historic moves, and it beat’s the S&P 500’s year-to-date climb of 22%, but how far will the bulls take it before they say enough is enough and the bottom falls out once again.

After all, gold really isn’t worth a lick.

You can’t eat it. It won’t fuel your truck. It won’t give you shelter and it won’t protect your house (unless you’ve got a good arm). When the dung really hits the fan, gold’s only strongpoint is it’s more valuable than a fancy certificate that says you own 1,000 shares of XYZ.

But even then, it’s only valuable because we say it is.

Let’s be flat-out honest with each other here. What are the chances of full-on economic calamity? I mean the kind of situation where you will dig your gold out from beneath the old oak tree and take it to the grocery store to buy a slab of bacon.

In other words, what are the chances you will actually use gold for its “emergency” purpose?

Slim to none, and I’m more pessimistic about this economy than any Roubini-following perma-bear.

Gold’s a trap, especially for the folks buying at today’s prices and actually paying to store the rare metal in some vault.

If you absolutely have to own gold, keep your ownership to a minimum, a few grand worth of coins or so. Nothing more.

Better yet, take advantage of the gold rush of ’09 and invest in the world’s gold miners. They are the ones fleecing the bandwagon riders and creating the ultimate market-beating profit potential.

In this market it is more important than ever to not be a clueless sheep merely following the herd.

Be the shepherd and lead the lambs to slaughter.

*** As options investors we love to lead the pack. That’s why over at TFN Strategic Trader, we are all smiles today. After locking in gains of 400% last week, we sold another set of call options for quick-and-easy gains of 60%.

On Friday I sent out a buy alert. This morning I said sell. Traders that followed my advice locked in three-day gains of 60%. Way better than gold.

David Fessler (Investment U):

As the old saying goes, “You’re either a contrarian, or a victim.”

It just so happens that one of the savviest contrarians I know is my colleague, Louis Basenese.

And nobody takes that to heart more than Lou does. I’ve scratched my head in bewilderment on many occasions after reading one of Lou’s bold predictions – only to see his intuition prove uncanny time after time.

So today I’m stealing a page from the “Basenese Playbook” and taking a look at the severely battered transportation sector, one that pretty much everybody hates. However, I think, it’s not only about to come off life support, but perhaps become one of the hottest investments in 2010.

The Transportation Sector: The Market’s Most Important Domain

Airlines, railways, package carriers, even oil and gas pipelines are all industries that make up the transportation sector.

But why should you care about it?

Because transportation is actually the most important sector – and for good reason: growth or contraction here serves as a proxy for both U.S. and global economic growth.

It stands to reason that if more “stuff” is being shipped, it means companies are producing more goods to satisfy business and consumer demand. In turn, this is a good indication that the U.S. economy – and that of the rest of the globe – is in decent shape.

Right now, however, there’s a big change underway in U.S. freight transportation. Thing is though, it’s hardly received any attention. So let’s take a closer look…

And the World’s Most Efficient Transportation System Is…

Let me toss a few statistics your way…

Click here to read the rest of Mr. Fessler’s article at Investment U and uncover his three transportation sector picks.

Guess what happened last year? According to a study from Boston Consulting Group, the only area of the world that got richer last year was Latin America… led by Brazil!

The rest of the world got poorer. By 11%, according to BCG. Down in the rum and sun zone, on the other hand, they got 3% richer.

So maybe our investments in South and Central America will turn out all right after all.

Meanwhile, back in the developed world… what’s going on? There are two main schools of thought. Ours. And theirs.

Who’s right? You decide.

They say – the crisis is over. We can thank our lucky stars – and the feds.

Now, we’re getting back to ‘normal’… or maybe a ‘new normal,’ with lower growth rates than before. Janet Yellen, San Francisco Fed governor, says the recovery will be ‘tepid.’ Others say it will be weak… soft… drawn out.

“The slowest recovery since 1945,” says a Bloomberg report.

It may be slow, they say, but it’s sure. The stock market proves it.

Stocks are up 65% worldwide, with the US a laggard… stocks in the US are up barely 40%. The Dow rose 21 points yesterday – still a long way to go to get to the 50% rebound mark, at 10,300.

Gold closed down, but still over $1,000. And the dollar continued falling – reaching $1.46 per euro.

In our view, there is no recovery. None. All of the improvement in the economy can be traced directly to bailouts. None of it – not a single penny – is organic, natural or durable. When the subsidies for new cars go away, for example, so do auto sales.

We wrote a book, with Addison Wiggin, several years ago. In it we predicted that the US would follow Japan into a long slump. We thought it would begin after the tech crash of 2000. We were wrong about that. But it seems to be beginning now. And the government, predictably, is doing the same things the Japanese government did – despite Bernanke’s assurances that he won’t allow the country to fall into the Japanese deflation trap.

One thing the Japanese did was to reduce interest rates… practically giving away money to anyone who would borrow it. But Japanese consumers didn’t want to borrow; they wanted to save. They had speculated on the bubble and lost money. Then, with retirement approaching they wanted to replenish their savings and rebuild their balance sheets.

So, the Japanese government put out money… and it was taken up by speculators, not by the real economy. The speculators borrowed yen, at very low interest rates, and then reinvested the money in go-go sectors elsewhere – such as the US dot.com bubble. The yen became the world’s “financing currency.” If you wanted to build a factory in China or speculate on Argentine bonds, you could begin by borrowing cheap money from Japan. Thus, Japan contributed to a huge boom all over the world. But not in Japan. The land of the rising sun never seemed to get up in the morning. Property investors lost 80% of their money. Stock market investors lost as much. Even now, nearly 20 years later, they’re still 75% down.

And now, along comes the United States of America with super-low lending rates. But who’s borrowing? Not the moms and pops of Middle America. They don’t have anything to borrow against. And the banks won’t lend to them. The banks need money for themselves. Besides, everybody knows the average household in America is losing income.

What’s more, mom & pop don’t want to borrow. They’ve been through 10 years of losing money on Wall Street. Stocks are no higher now than they were a decade ago. And their houses – on whose rising prices they had counted for their retirements – have gone down 20% – 40%. And they’re still going down.

The poor moms & pops can’t seem to get a break. They’re now desperately saving for retirement – at the worst possible moment, when jobs are scarce and wages are falling. But what else can they do?

Spengler, in Asia Times:

“An aging population increases its purchases of securities and decreases its purchases of goods as it saves for retirement. Americans have saved nothing for the past 10 years, and the capital gains that they considered savings-substitutes have vanished. That means that an enormous savings deficit accumulated over more than a decade has been exposed, and that Americans must attempt to correct it quickly and under the worst of circumstances. Americans will work more, spend less, and save more. America may have the worst of both worlds: currency devaluation and price deflation, as in the 1930s.”

*** So, the feds push money into the economy, but it’s hot money. It’s money that speculators use to place bets on gold… or on Brazilian bonds… or on oil exploration companies. The money never ends up in consumers’ hands. It never bids for consumer goods. It never pushes up consumer prices.

As in Japan during the ‘90s, America’s hot money may go all over the globe. It may turn the entire world into a casino. But it won’t bring about a real recovery…

…if cheap money from the government were all it took to bring prosperity Zimbabwe would be richer than Switzerland. Obviously, it doesn’t work that way.

But here’s the shocker. While we know easy money policies don’t create prosperity, you may be surprised to learn that they don’t necessarily cause inflation either. In other words, government may be incompetent, even at what it does best.

So, why is gold rising?

Ah… we were afraid you were going to ask. We’ve been doing a lot of thinking about it. Partly because our family office partners are smart fellows who ask smart questions. And partly because we’re wondering what to do with our own gold. Buy? Sell? Do nothing?

We spent half the night drinking and meditating on the subject. Finally, we’re not sure we had a clearer idea… but at least we were able to sleep.

We’ve already unveiled the idea to you. The feds can cause speculation in gold; but they can’t easily cause consumer price inflation. As explained above, they can get cash into the hands of speculators, but not into the hands of consumers. Not in the middle of a major consumer retrenchment.

The Roosevelt Administration was faced with the same problem. But back then, gold and the dollar were linked. Roosevelt could devalue the dollar by edict. The Japanese couldn’t do that. Nor can the Obama Administration.

In a deflationary credit cycle, you may only be able to cause consumer price inflation by resorting to extraordinary Zimbabwe-style money printing. You can drop money from helicopters, as Ben Benanke promised. But as Zimbabwe demonstrated, that cure is far worse than the disease it is meant to heal.

All of that said… gold can rise… partly because people are betting on it as an antidote to inflation (not realizing that consumer price inflation may be a long way off)… and partly for other reasons.

Lately, one of those other reasons may be heavy buying by the Chinese. The Middle Kingdom wants to diversify out of the dollar. It also has a central bank with very little in gold reserves. What better to do than to diversify out of the dollar by adding gold to its central bank reserves? Word on the street is that it is buying steadily.

The Chinese have made a number of announcements on the subject. We don’t really know who’s in charge there, so we don’t know whose comments to weight most heavily. One Chinese official has said that the government is buying gold and intends to buy more. Another says they will buy “when people don’t expect it.” Another says the Chinese expect gold to go to $3,000 an ounce.

The Chinese have the money and the motive. They alone could move the price of gold to $3,000 if they wanted to. And maybe they do.

Until tomorrow,

Bill Bonner

Source: What China Could Do to the Price of Gold

U.S. crude prices for October delivery rose 2 cents to $68.07 a barrel by 11:44 a.m. EDT (1644 GMT), after earlier reaching a high of $69.40 on U.S. stock gains and a weaker dollar.

London Brent crude was down 32 cents at $67.34 a barrel.

“Right now, there’s not a whole lot of momentum here in either direction. I think the trend for the week, which has been down, is still in force,” said Tom Bentz, senior commodity analyst, BNP Paribas commodity Futures Inc in New York.

“Everything seemed to kind of slip right after the jobs data,” he added.

U.S. jobless claims fell last week, according to a report released by the Department of Labor on Thursday, but the prior week’s figure was revised up.

The number of people collecting long-term unemployment benefits rose to 6.23 million in the week ended Aug. 22, well above market expectations for 6.12 million.

U.S. stocks edged up on Thursday on better-than-expected sales from retailers in August.

The Institute for Supply Management released a report on Thursday showing that while the U.S. services sector shrank in August, an index measuring activity was at its highest in nearly a year.

RANGEBOUND

Oil prices are not likely to break out of the confines of the current range in the short term, analysts said.

U.S. crude prices have been rangebound, between $65 to $75 a barrel since the start of August, fluctuating on the latest clues about the speed of an impending economic recovery.

“There isn’t the structural tightness for the market to break out of this range,” said Petromatrix analyst Olivier Jakob, pointing to brimming global distillates such as diesel stored on land and at sea.

Traders were also eyeing news that big oil producers are increasing output. Russian oil output hit a record high in August, nearing 10 million barrels per day as the country launched a new giant field.

OPEC is expected to leave output targets unchanged when it next meets on Sept. 9 in Vienna.

Sept 3 (Reuters)

“The Obama administration, for example, expects to run $9 trillion in deficits over the next 10 years – and that number is based on a recovery! Imagine what will happen if the economy doesn’t recover?”

Now, that’s a nice comforting thought to start our day right? NOT! WAKE UP! Morning has broken, and the coffee is on… If you are still of the thought that this is all going to end up seashells and balloons, then you need to stop and smell that coffee!

Oh brother! Looks like I’m full of you know what and vinegar this morning! Let’s try to calm down, Chuck, you’ve only just begun to write, you don’t want to peak so soon!

OK… Yesterday, I told you that the Asian stocks had sold off and that risk assets were being taken off the table. But that didn’t last long, and by mid-morning, I witnessed a nice currency rally, that wiped out the overnight selling. At one point during the morning a customer called to buy some euros, and when the sales person asked me for a price, I said, “you know, they may want to come back tomorrow morning, after the overnight markets beat the euro up, like we’ve so many times lately.”

But wait! That did not happen last night! So, I was wrong! The euro is getting some real love this morning after German unemployment fell in August, which was totally unsuspected. Euros and Swiss francs are the only currencies I see that have gained on the news this morning. So the Big Dog, euro, must have told the other little dogs to “stay on the porch”… Stay Rex!

German unemployment fell by 1,000… OK, now I know that this has the same feeling as removing a bucket of sand from a beach, when unemployment in Germany is 3.46 million! But, I never said that Germany’s economic recovery was a tidal wave! It’s smoking embers, that are in need of stirring, some small twigs, and leaves… My beautiful bride is an “expert” and getting a fire started like that, I should send her over to Germany, that would really kick the domestic demand to another level! HA!

Baby steps… That’s the way we’re going here… So, we’ve had IFO and ZEW think tank reports on Confidence all print stronger… We had the GDP surprise on the upside… And there was something else last week, but it slips my mind right now. The point here is that the Eurozone’s largest economy is waking up… We just have to hope it doesn’t hit the “snooze” button, now!

A reader sent me a note yesterday asking if I thought there would be a collapse of the Eurozone and thus the euro… If I had $5 for each time these stories have hit the streets, I would be sipping on a multi-colored drink in a tall glass with one of those tiny umbrellas, in a tropical setting… The point I’m making here is that on the outside Spain and Italy have problems… But what’s changed? These two had problems before they joined the Eurozone, and have had problems since joining the Eurozone… Me? I totally believe that these two get down on their knees each night and give thanks for being allowed to join the Eurozone!

So… In case you missed my answer in there… I don’t see that happening, at least not in the near future…

OK… Enough of that! The Reserve Bank of Australia ( RBA )met last night, and left rates unchanged, as suspected they would, and the following statement regarding their thoughts on the economy was relatively upbeat… However, the markets were looking for an indication of “when” the RBA would hike rates, and that didn’t happen… So… The markets were disappointed, and when they are disappointed with a Central Bank, they take it out on the currency! So the A$ got pounded overnight.

Now… Aussie GDP for the 2nd QTR is going to print tonight, I would have to think that the RBA maybe had a peek at the report, and thus their gearing down the interest rate hike talk… So… We could be looking at even weaker A$ prices tomorrow morning… Unless, that is, 2nd QTR GDP is as strong as it was once believed it would be!

Did you see where Canada printed a HUGE Deficit last week? Not a good thing… But, the Canadian balance position has teetered back and forth between Surplus and Deficit, but recently has remained in the red… You know me and deficits, so, I put a red mark next to the Canadian dollar / loonie… But then, you hear news like last night… Get this! PetroChina has agreed to pay C$ 1.9 Billion for a stake in a Canadian oil sands project. PetroChina will buy 60% of Athabasca Oil Sands Corp.’s MacKay River and Dover oil-sands projects.

That’s 1.9 Billion Canadian dollars / loonies that will have to be purchased… And You would have to think that China will be spending the “few loose dollars” they have in their pockets, which would put pressure on the green/peachback!

Canada is still in a recession, here folks… But… Could these be cheaper levels given the merger and acquisition activity? Only the shadow knows!

OK… So, here I am, 1 hour from when I began writing this morning, and all that glossy and shiny talk about the euro’s rally is fading… The Big Dog has lost 1/4 euro in the past hour… So… I wasn’t wrong after all!

OK, you’ll love this, or maybe you won’t, but I do, and since I’m writing this letter, I get to talk about it! HA!

Here’s the title of the story that flashed across the screen, and of course, caught my attention… “Goldman Sachs Wrong on Economic Recover, Macro Hedge Funds Say”

You’ve got me on this one! I’ve got to read on… “Paul Tudor Jones, the billionaire hedge-fund manager, who outperformed peers last year, is wagering that Goldman Sachs Group, Inc. and Morgan Stanley to it wrong in declaring the start of an economic recovery.”

“If we have a recovery at all, it isn’t sustainable.” One Hedge Fund Manager said… Calling this a “ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

WOW! These guys must be reading the Pfennig! OK, I kid, because these guys would never bet caught with the Pfennig in their hands… They probably put it between the pages of the “Economist” so that others think they’re reading the Economist! HAHAHAHAHAHAHA!

Speaking of “must be reading the Pfennig”… I saw a thing that came across my desk yesterday that 57% of Americans would vote out every politician if the vote were taken right now! WOW! I didn’t know the Pfennig was read by so many people! Recall, I said weeks ago, to “fire them all”… Well, let’s hope that 57% grows to 95%, and Americans really do go through with their threat to vote them all out, if they continue to take us down the road to socialism / fascism / collectivism…

OK… You may recall a couple of weeks ago, I started asking you questions about the stock market rally, and it’s ability to continue on… I truly believed that the stocks were overbought, and the P/E ratios were out of control… Now, I see quite a few jumping on that bandwagon, and calling for a stock market reversal.

Do we really think the Gov’t will allow that to happen? Didn’t the President himself, say that he thought it to be a good time to buy stocks… Isn’t that sort of like a wink and a nod from the President that everything will be OK?

Beyond those conspiracy thoughts, let’s just say the markets get to go where the participants take them ( I know, it’s not reality, but let’s just play along ), and stocks begin to reverse their gains from March… I would think it to take an adverse affect on the currencies and their gains since March too… Throw Commodities in there too!

Now, in the old days, I would look at a stock sell off and say, currencies will rise… “Honey, put on the red dress tonight, we’re going out on the town!” but… These aren’t the old days… This is the new improved way of throwing all risk assets into the same barrel! And I don’t like it at all!

Ok… The Norwegian krone, traded with a 5 handle yesterday for the first time in a month of Sundays! It has traded back over 6 overnight… But, it was a good strong move from the krone yesterday nonetheless!

Well, today, we’ll see the ISM Index (Manufacturing) from August, and for the first time in 19 months, it is expected to be above 50! New readers might wonder what I’m talking about here… But it’s simple… 50 is a line in the sand that says any number below it represents contraction of manufacturing, and any number above it represents expansion of manufacturing… So, if it prints above 50 as expected one would say that manufacturing must be recovering…

Let’s look at that closer… Come on, closer, closer, closer! We’re experiencing a global recession, and global trade has been sketchy at best… But here’s U.S. manufacturing showing expansion… And… The rise has been quite steady since March… With March printing at 36.3, April 40.1, May 42.8, June 44.8, and July 48.9… See the steady rise?

What else has happened since March? That’s right, thank you for paying attention there in the back of the class! Yes, the currencies have been rallying VS the dollar… So, the dollar is much weaker than it was in March… The dollar index was 89.05 on March 5th, and today it is around 78… So… How did manufacturing / exports rise during this period of time? Because the dollar was weaker!

Let’s keep that in mind, eh? For if we get an adverse affect on the currencies from a stock sell off, this recovery in manufacturing could go kaput!

We’ll also see Pending Home Sales for July, and Vehicle Sales for August… Cash for Clunkers will push up the Vehicle Sales… But what happens next month?

Gold has backed off by about $8 in the past two days… It’s a dip… Therefore it must be an opportunity to buy at a cheaper price! I was reminding all my friends that we spent the weekend together at a lake, that I had told them to buy Gold $400 dollars in price ago… I was booed out of the room at that point, because you see, they didn’t buy it $400 dollars in price ago!

And on that note… I’ll head to the Big Finish!

Currencies today 9/1/09: A$ .8355, kiwi .6820, C$ .9125, euro 1.4295, sterling 1.6220, Swiss .9440, rand 7.7975, krone 6.0275, SEK 7.15, forint 192, zloty 2.8780, koruna 17.9110, RUB 31.8325, yen 93.10, sing 1.4430, HKD 7.75, INR 49, China 6.8303, pesos 13.44, BRL 1.88, dollar index 78.35, Oil $69.69, 10-year 3.38%, Silver $14.75, and Gold… $949.50

That’s it for today… Well, it’s been an unusually cool summer here in St. Louis… We had two separate weeks of hot weather, and that was it! It normally is much hotter, with very high humidity… I wonder what that means for this coming winter! UGH! Just found out yesterday that I won’t be going to Marco Island this December to speak like I had the previous two years… UGH! September is the last full month of baseball, and with the Cardinals in first place in their division, this should be a good month! There are two middle of the week day games in September, and I always enjoy those! So… Summer may be coming to an end, as along as September takes a long time to work through, I’ll be OK! All righty then, let’s get going on this Terrific Tuesday, the first day of September!

Source: More Baby Steps For A German Economic Recovery

Then, he followed his own theory… coolly… confidently… cutting Fed rates down to nearly zero, pushing Congress to pass a huge ‘stimulus’ bill, and even forcing Bank of America (NYSE:BAC) to take over Merrill Lynch. In this last event, he is accused of deliberately hiding Merrill’s enormous losses and then threatening the BofA board with dismissal if they refused.

Because of Bernanke’s swift and assertive action, the nation’s banking system held together during those critical weeks of late-2008. And because of his monetary (and fiscal) policies, all the worlds’ economies are now in some stage of recovery. Stocks are rising. House sales are increasing. All the indicators point to a better world.

In recognition of the fact that he saved the world, Ben Bernanke was given the nation’s highest honour; Obama picked him to continue as head of America’s central bank, the Federal Reserve… even though he was appointed by his predecessor, a Republican.

Everyone needs a story. It’s the way we understand things. Data is just data. Numbers are just numbers. Facts are just facts. Without the framework of a good tale to hold them together, they are worthless.

That’s why, here at the Daily Reckoning, we are suspicious of facts, data and numbers. As for the numbers, they are wrong before they get to us… often intentionally. Then, when they are later straightened out, they sometimes tell a completely different story. Even the ‘facts’ often turn out to be not facts at all… but distorted data, information has been twisted to fit into a storyline.

The more precise the data, meanwhile, the more they lie. Give us a CPI rate of 6.24% and we will give you back two numbers that are total fictions… and another one that turns out to be wrong later. As for the GDP growth rate… don’t even bother to give us a number at all. Whatever the digits say, it’s a lie.

This week came news that the GDP is falling at a 1% rate. This number surprised economists. They thought it was falling at a 1.5% rate. This better-than-expected number encouraged investors to buy stocks; the Dow rose 37 points yesterday. Oil and gold remained more or less where they were.

Economists are frequently surprised. In a study of GDP forecasts, a researcher found that economists did nothing more than extrapolate current trends into the future. If the GDP was growing at 2%… they projected that it would grow at 2.3% the following year. Or maybe 1.9%. These projections were mostly correct. Generally, one year is a lot like the year before. But whenever the direction changed dramatically, economists missed it completely. In other words, they’re not really capable of telling us what the economy will do – unless it does nothing different.

We’ve discussed the emptiness of the GDP figures many times. Just because the GDP is growing doesn’t mean people are really any better off. In fact, GDP growth during the Bubble Epoque was really a measure of how fast people were ruining themselves. Seventy percent of the GDP was consumer spending; as consumer spending went up so did debt. The result was a paradox and a shame – at the end of one of the longest periods of uninterrupted GDP growth in history, the typical householder was poorer than he was than when it began.

That’s why we are skeptical of numbers… especially precise numbers. They lie through their decimals.

What matters is the story… and our story now centers on the role of one man: Ben Bernanke. But the story that most people hear… and believe… is false. It is like GDP growth in the Bubble years… it may sound right on the surface, but the real story is opposite to what is commonly believed.

Bernanke ‘wrote the book’ on avoiding deflation, ‘tis true. But he doesn’t really have a clue what he is doing. He didn’t really avoid a Second Great Depression. There isn’t really a genuine recovery underway. And the world is not becoming a better place as a result of Ben Bernanke’s exertions.

Au contraire… he’s making a natural mess into an unnatural one. He’s turning a depression into a Great Depression… He’s making a bad situation worse.

At least, that is OUR plotline. But we’ll let the story tell itself… day by day… and see where it leads us. If we are wrong about the plot… we’ll find out…

*** What a summer.

Last night we invited our neighbours over for a barbecue. Damien, our gardener, manned the fire. Jules took care of drinks.

Along with the farmers, their wives and their children, came the girls from across the road. You’ll recall THAT storyline, dear reader. This has been a summer of awakening for the teenagers. For the first time since we’ve been here – 14 years – our boys have noticed our neighbours’ girls. Every summer before, we would only see them in church, lined up in pretty dresses… quiet… polite… We exchanged kisses, in the French manner, after the mass, but that was it. Otherwise, we never saw them.

“This is a summer the boys aren’t likely to forget,” began their older brother at breakfast this morning. “They all went down to the pond after dinner last night. I went down to say hello, but after a few minutes, I felt out of place. It was pretty hot down there.”

Yes, the girls have grown up. And so have the boys. Back and forth, all the month of August. Playing tennis and swimming in the daytime. Having dinner and hanging out at the pond at night.

“It’s a lot of fun,” our youngest boy, 15, reported earlier in the week. “But it’s complicated. We all seem to like someone else… but not the one who likes us. Eloise likes Henry, but Henry likes Claire. Claire likes me, I think, but I like Sylvie. I don’t know who Jules likes, but I think all the girls like him.”

Last night, however, it looked as though the iron filings were finally lining up. Your editor went down to the pond at 2AM; it was time to take the girls home, he told them.

“I don’t care if the girls want to stay or not… Take them home,” he told them.

The boys obeyed. But it was obvious that none of them wanted to leave. Edward had one of the girls by the arm. Henry and another were deep in conversation on the other side of the fire. Jules was nowhere to be seen.

It was the last time they would see each other until next summer. The girls would go back to their lives in Paris or elsewhere. Our boys would go back to school or on to their careers. Tonight was their last night together. The goodbyes were long… and, probably, tender.

“C’mon… get going,” said Father, heartlessly. “Wrap it up…”

Source: Making a Bad Situation Worse