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.

David Stevenson (MoneyWeek, UK):

It’s not been a great week for British bankers.

There’s the ongoing spat between RBS and HM Government over how much the former’s heavy hitters can pay themselves in bonuses. Then there’s the embarrassing yet somehow inevitable revelation that our banks are the ones most exposed to Dubai – with RBS top of the pile, naturally.

Meanwhile, French President Nicolas Sarkozy has been unable to disguise his glee that Europe’s new finance minister is a Frenchman, who he clearly believes will take the City down a peg or two.

But these are just niggles compared to the real dangers the banking system faces.

The cheap money that the UK’s lenders have been enjoying is about to dry up, for one thing. But worse still, while central banks have been flooding the world with money, a dangerous imbalance has been building up in the banking sector…

Click here for the rest of Mr. Stevenson’s insightful article at MoneyWeek, UK.

Since I first scraped my knee chasing the neighbor’s cat across the street dozens of years ago, I have been a fan of the get-it-over-fast strategy. Rip the stitches, dry the tears and move on. Dilly-dallying is for sissies and I’m no sissy.

But the nitwits in Washington beg to differ.

After the first round of trillion-dollar stimulus failed to ignite anything but tempers, Congress is hitting us with a slow, but steady stream of economy-boosting spending. They won’t call it a bailout or stimulus, those terms have been politically wasted, but they continue to pour money into the economy like its water on a broiling fire.

They are pulling the Band-Aid off one painful follicle at a time. And I’m getting sick of it.

We’ve got homebuyer incentives. Business loans. Green tax incentives. Car interest deductions. And now more deadbeat homeowners are getting off easy as Obama takes more money from my wallet and gives it to some McMansion owner.

All this hoopla in Dubai proves the point the markets have no clue as to proper valuations. Given just one minor hiccup in the global economy, Wall Street was poised to sell off like never before. The over-leveraged, over-hyped Dubai World comes to the world on Friday and asks for a delay in paying its $60 billion obligations and pundits react like Iran launched “the bomb.”

Come on folks. Dubai’s financial situation is little removed from Donald Trump’s recent woes, including the funky head piece. That much leverage and something will eventually snap.

Even with this notion, the markets were ready to succumb with just one headline.

“Give me just one reason,” you could hear the investors muttering as their nervous finger hovered over the sell button. In the back of their mind, every investor is nervously awaiting the one final catalyst that sends this top-heavy market back where it belongs.

The words “double-dip recession” are on the tip of everyone’s tongue, even Obama’s, but nobody is ready, or politically willing, to call a spade a spade. They’d rather leave the Band-Aid in place for just one more day.

Instead, we are going to sit back, watch unemployment remain over 10% for the next eighteen months and let our government get away with murder. Just like G.W. used 9/11 as a springboard for his defense initiatives, this administration is using a nasty economy as an excuse to move us one mandate away from socialism.

And we are taking it. We are taking it like a herd of cattle take an invitation to a feed lot. This is not a free lunch, folks. Someday soon we’re going to get slaughtered.

*** Investors had better be prepared for what lies ahead. The swift reaction after the news from Dubai proves the markets are uncertain.

Uncertainty creates problems.

If I had to pick just one sector of the economy to be the model of uncertainty, it would be consumer spending. With Black Friday data looking lackluster at best, retailers have little idea what to expect going forward.

Instead of watching the six o’clock news for a hyped up version of the antics at the local mall, I fired up Ole Betsy and drove to a friend’s local shop. What I saw was far different than the frenzied lines at the local Best Buy.

Sure, there were sale signs everywhere, but two customers hardly form a line worth photographing.

When I asked how many of the big sale items were pulled off the shelf, the answer was a big fat goose egg. The big names may draw a crowd, but with razor thin margins they need crowds. To get a scaled-down view, take a look at the little guy.

That scene isn’t pretty.

But there is good news today. Early reports show that Cyber Monday traffic is up by more than 40%. While clicks don’t equal sales, buyers are at least scoping the deals.

That is good news for the online world and is part of the reason shares of Amazon hit new record prices this morning.

Before Jeff Bezos and his troops were celebrating, I was writing a piece for TFN that highlighted a company that will likely be a winner as cash-strapped consumers search out the best deals.

Here is a bit of what I wrote:

“One stock all traders should be aware of on this so-called “Cyber Monday” is ValueVision  Media (NASDAQ:VVTV), the home of ShopNBC.

“As consumers cut back this holiday season, shoppers will diligently search for the best deals. One place they will find them is on the company’s home-shopping network and the ShopNBC web site.

“I have tracked ValueVision for numerous holiday seasons. It is a predictable, cyclical play with the holiday season the catalyst for strong swings in either direction.

“Historically, buyers that got in before the holiday season and got out early in the New Year made sizeable and reliable gains. But predictability kills Wall Street.

“Over the past several years, buyers that got in on December 1 and out on January 1 lost money. That’s because after years of predictable gains, the bandwagon become overloaded.

“But this year I am expecting another turnaround in the trend. We’re back to buy now and sell in January. You won’t get rich from the play (20% upside), but you will find a way to eliminate most market volatility and put weaker consumer spending on your side.

“ValueVision is a small, $107 million company. It has no long-term debt and is poised to rebound to positive cash flow this quarter.

“The real kicker to this stock, however, is its high beta score.” Keep reading here.

*** And now for a new feature this week. Over the past month (it’s been thirty days now since I took the helm), I noticed that Notes readers are incredibly unique. They don’t follow the herd. They think for themselves. And they have interesting insights.

My kind of people. I like it.

That’s why each week, I am going to toss out a “question of the week.” I trust I won’t even have to ask for your thoughts on the subject. Let me have it and we’ll discuss the varying opinions as the week goes by.

This week’s question: Is it a coincidence the weekly political roundtable programs air at the same time churches offer their weekly services?

Looking forward to your thoughts.

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.

There’s one antidote for this problem … remembering a few basic rules. Just embrace the 10 ideas that follow and you’ll be in line to make some serious money in the months ahead.

Rule Number 1: Invest on the Right Side of Major Economic Trends:That old investing adage “Don’t fight the Fed” serves as a good example here. Rising interest-rate environments make meaningful gains difficult to sustain – unless you know what to look for. Far too many investors got it wrong in the 2000-2003 and 2008-2009 periods by betting on growth stocks in a recessionary economy, and they’re still getting it wrong. Those investors are likely to get burned again should the economy slow even more, despite the government-bailout and federal-stimulus efforts. Make sure to analyze all of the other major global trends, as well – and ride the ones that are truly unstoppable. You’ll know them when you see them, because they’ll have trillions of dollars in new capital flowing directly at them – investment plays in such areas as infrastructure, inflation, energy, food, and water (both supply and purity) are great examples.

Rule Number 2: Sell Your Winners: This may seem counterintuitive, but – if you want to succeed – you must sell your winners. Rule Number 6 – thinking like a plumber to prevent losses – is only part of the success equation. To be really effective, you have to take profits, too. That way, you get more capital that you can put to work. Think of it this way – Safeway Inc. (NYSE: SWY) regularly replenishes the inventory in its

Produce Department to keep it fresh. You should do the same with the “inventory” in your portfolio because, if you let your stocks sit on the shelf too long, they’ll eventually go bad – just like fruit that’s past its expiration date.

Click here for rules 3-10 from Keith Fitzgerald, Chief Investment Strategist of The Money Map Report.

With the global economy taking off without us and foreign interest rates already on the rise, the Fed is desperate to look bullish while acting bearish.

Anybody that has ever tried to prove the existence of Santa Clause or the Tooth Fairy to a six year old knows what Bernanke is trying to do. At this point, he’ll do anything to change the subject and focus the attention on something else.

With all of this talk about an increasingly deadly carry trade bubble, it is beyond obvious that American interest rates need to rise. If it doesn’t happen, soon enough all of America’s money will be invested in some high rise in China’s Guandong province… or Saudi oil.

But we all know Bernanke would commit career suicide by lifting a headliner like short-term rates even by a quarter of a percent. The blame for any upcoming financial downturn will be squarely on his shoulders.

For the youngsters in the room, he’ll be blamed for outing Santa Clause.

So what’s the guy to do? He’s already doing it.

The Fed is unraveling its plans to buy a whopping $1.25 trillion worth of mortgage-backed securities and $200 billion worth of other mortgage-related notes.

By March, the Fed’s massive buying spree will be over, once again letting the markets deal with a massive amount of very “un-transparent” securities. The same lion that brought the bull down is once again about to be un-caged, hungrier than ever.

If you thought the market had a hard time swallowing so many mortgage defaults, wait until $1.45 trillion dollars runs straight into 10% unemployment and a real estate market worth a fraction of what it was even a year ago.

And here’s the kicker, just by refraining from hitting the “buy” button, Bernanke effectively raises mortgage rates by as much as 100 basis points.

Let’s see… 10% unemployment, a weakened currency, deflating home prices and inflating borrowing costs. It’s a recipe for disaster.

At least Bernanke gets to keep his job and he gets the keen realization that he would not be in this bind if he never would have meddled with the markets in the first place.

We all knew the day would come when the Fed had to clean up its mess. That day has come.

***As if the markets have not shown enough contempt for government intervention, Uncle Sam is once again trying to throw sand into the gears and cogs of American business.

This time they want us to pay workers for not showing up to the job.

Thanks to a representative from California (there’s a surprise), legislation is working its way through Capitol Hill that would force employers to pay an employee for up to five days worth of sick leave if the worker is diagnosed with ANY infectious disease.

The rational side of my brain says there is absolutely no way this is going to make it the White House. The harm it would do to production is simply too immense to deny, even by politicians.

But the irrational side of me can already imagine the last-minute phone calls. “Sorry boss. I can’t flip burgers today. Got herpes. See you on Friday to get paid.”

Gotta love where we are headed.

Traders took advantage of a dollar rally in the prior session to sell on views the Fed will signal plans to maintain loose monetary policy well into 2010.

Currency investors are also bracing for G20 leaders to discuss rebalancing the global economy this week, a process that would almost certainly require a weaker dollar.

A document obtained by Reuters showed how Washington would urge G20 leaders to launch a new push this year to get debtor nations like the United States to save more and exporters like China, Germany and Japan to spend more.

“If you take the view that too much of U.S. growth has been domestically driven, the next logical step is to say an orderly decline of the dollar — it’s not in anyone’s interest to see a collapse — in many ways makes sense,” said Tom Fitzpatrick, chief technical analyst at Citigroup in New York.

“And at the end of the day, the U.S. has a zero interest rate policy and the highest fiscal deficit in peacetime while (foreign investors) are holding a lot of dollars, so the path of least resistance for the dollar is down,” he added.

The euro was up 0.8 percent at $1.4794 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. The dollar fell 1 percent to 91.09 yen and 0.9 percent to 1.0231 Swiss francs , near a 14-month low touched earlier.

Sterling rose 1.0 percent to $1.6375 while the New Zealand dollar surged more than 2.0 percent to a 13-month high after dairy exporter Fonterra raised its estimated payout to farmer shareholders. Fonterra accounts for some 7.0 percent of the New Zealand economy.

With no major economic data on the calendar, traders said $1.4825 may be the next target in euro-dollar, with many predicting an eventual move back to $1.50.

“Every time we get to a round number in euro-dollar, we’ll probably try to chip away on the way to $1.50. But for now $1.4825 is the next line in the sand, and then we’ll have to wait and see about $1.49,” said Steven Butler, head of FX trading at Scotia Capital in Toronto.

DOLLAR IN FOCUS AT G20?

European Central Bank Governing Council member Axel Weber said on Tuesday recent moves in currency markets were “not out of line” given the euro zone’s economic performance relative to other areas.

Some said this suggested the ECB was comfortable with the euro’s level and was a green light to push it even higher, especially in light of the U.S. proposals to put fixing global imbalances on the G20 agenda in Pittsburgh this week.

But others said there is still a risk of dollar bearishness engulfing the market and selling turning into a rout.

“A discussion at the G20 on currencies, and especially the dollar, is not only appropriate but essential, as this move could accelerate swiftly,” said Maurice Pomery, managing director at Strategic Alpha in London.

Sept 22 (Reuters)

With no more fear of the deflation devil investors feel they are in the arms of angels. Surely Ben Bernanke watches over them even when they sleep. Even the President of the United States thinks he saved the nation.

As for Tim Geithner, he takes no chances; he sings his own praises. Speaking to a gathering of the G20, he congratulated them all:

“…facing the greatest challenge to the world economy in generations, the G-20 gathered here in London and committed to an unprecedented program of policies to restore growth and reform the international financial system. Those actions have pulled the global economy back from the edge of the abyss. The financial system is showing signs of repair. Growth is now underway.”

Stocks are still up. Commodities too. Oil is over $70. And most encouraging of all: the 10-year US Treasury note yields only 3.47%. So what evil sends investors running to the protection of gold? None at all, say the papers; investors buy gold in anticipation of better times. They see a recovery, bringing with it tightened supplies and rising demand. Every economist, investor and hair stylist knows what this means – inflation.

But if growth is underway, investors should be glad there is not more of it. The key indicators of real economic progress are negative. Unemployment is not rising; it is falling. Nearly 7 million Americans have lost their jobs since the recession began. In California, only 3 of 5 working age residents have a job. And those who are still working are putting in the shortest workweeks ever recorded. How could the economy be growing with fewer people earning money? The New York Times attempted to explain the enigma by calling it a “jobless recovery.” But a recovery without jobs is like a loveless marriage or a fat-free burger – it is disappointing.

Another key indicator is personal spending. Not surprisingly, that is down too. Personal spending has fallen in four of the last six quarters – something that has never happened before, since they began keeping records in 1947. The level of consumer spending is down 33% from a year ago – with discretionary spending in the United States now down to a level it hasn’t seen in 50 years. Consumers aren’t spending partly because they have no money…and partly because they apply what money they have left to relieving the headache from their previous binge. A report this week showed they had reduced their hangover of personal debt in July by more than $21 billion – four times as much as economists forecast. These are, of course, the same economists who pimp for the angels at Bernanke & Co. If they’re right, we have a spending-less, jobless recovery pushing up the price of gold.

We offer an alternate interpretation. We begin with a doubt about the one now on the table. In the popular version, the more the recovery seems real, the more investors fear real inflation. This drives them to buy gold. Of course, it should drive them to sell US Treasury bonds too – which hasn’t happened. Nor has inflation gone up. And if this view were correct, we should begin to see remedial measures from the US central bank. The Fed should soon begin to withdraw its monetary stimulus, returning the economy to a kind of normalcy it hasn’t seen in years. The risk, not insignificant, is that Fed economists will err. They may loosen monetary policy too slowly or too quickly. Asked about the risk, Janet Yellen, President of the Fed’s San Francisco branch, promised to avoid the error of 1937 – she will not “tighten policy too soon, aborting the recovery.”

Gold bulls are counting on her. And they may be right. But here on the back page, we add a nuance. We’re not surprised by an occasional Fed error. What surprises us is the rare accidental success. There are 500 basis points between zero and 5%. It would take a miracle for central bankers to find exactly the rate the market needs precisely when it needs it most. The ’37 error, for example, might have been a success. At least it sped up the process of liquidation so the decks were clear when the post-war boom finally came.

Maybe we’ll get lucky and the Fed will make the same error again. Not likely. This time they’ll make a different error – adding too much cash and too much credit for too long a time. Today’s ‘recovery’ is based on hot money from the feds. It’s a fake. It won’t cause real growth. When this becomes clear, commodities will sink – along with stocks…and gold. Central banks, ignoring the futility of their hot money program so far, will add even more hot money. Eventually, the hot money will cause inflation to rise and gold to ‘melt up.’ Gold bulls will be proven more right than they imagine. But they may be proven wrong first.

Enjoy your weekend.

Source:  Fed’s Fake Recovery

U.S. crude for October delivery fell $2.20 to $69.74 by 1:24 p.m. EDT (1724 GMT) after rising to $72.90 in choppy trading. London Brent crude fell $2.10 to $67.76 a barrel.

“Crude put in a high for the week, but there was no follow-through and the dollar and S&P turned around and that helped pull crude back,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

U.S. stocks were hampered by profit taking after five days of gains and the longest winning streak since November which helped boost crude prices earlier in the week.

Analysts and traders say that current oil prices reflect attitudes in the market rather than fundamentals.

Data released Thursday by the U.S. government showed petroleum product inventories, including heating oil and gasoline, rose more than expected last week, suggesting lackluster demand.

“Fuel demand has not recovered and the market needs to see some demand after going up on sentiment,” McGillian said.

Data showed China’s crude oil imports in August surged about 25 percent to a near-record high of 19.6 million tonnes or around 4.6 million barrels.

Oil hit a year-high of $75 a barrel in late August, from below $33 in December, as global oil demand recovered.

Crude’s climb mirrored a rise in European equities <.FTEU3>, which were headed for their sixth consecutive session of gains.

Since March 9, equities and oil have traded in close correlation.

At least two rockets were fired from southern Lebanon into northern Israel, prompting an Israeli artillery response, heightening fears of regional instability and prompting earlier crude buying, traders said. No casualties were reported.

The International Energy Agency said that oil demand would rise this year and next as the global economy recovers, although it also said oil stocks in the big developed countries of the OECD were up 4.6 percent in July versus a year ago.

WEAK DOLLAR

The dollar index <.DXY>, a measure of the U.S. unit’s performance against six other major currencies, has dropped 1.9 percent in the past week. It briefly fell as low as 76.548 of Friday, its lowest level since September 2008.

Weakness in the dollar, the currency of the oil market, was a concern for the Organization of the Petroleum Exporting Countries. The group needs higher average oil prices to step up investment in new output, its secretary-general said.

The dollar’s slide has helped boost demand for crude this week, but an analyst at Commonwealth Bank said oil was unlikely to get much more upward momentum from the greenback.

“Our forecast for currencies is for dollar depreciation — a lot of that has occurred already and while depreciation has been an upside driver, that influence may be weakening,” said David Moore, commodities strategist at Commonwealth Bank in Sydney.

NEW YORK, Sept 11 (Reuters)

Solid U.S. and euro zone data and an upbeat assessment on the economy from Federal Reserve Chairman Ben Bernanke over the weekend earlier pushed investors to take on riskier investments at the expense of the the low-yielding yen and dollar.

“Conventional wisdom suggests that major currencies should trade within their recent ranges until liquidity improves after the Labor Day holiday,” said Wells Fargo currency strategist Vassili Serebriakov. “However, there is plenty of data in the U.S. and elsewhere to change that this week, with consumer-related numbers likely to be watched closely.”

Investors are looking ahead to upcoming U.S. and European data to confirm hopes that the world economy is improving.

The dollar was last up 0.1 percent at 94.49 yen while the euro slipped 0.1 percent to $1.4304 . Against the yen, the euro was unchanged at 135.20 yen .

The euro trimmed losses against the greenback after data showing much higher-than-expected euro zone industrial orders in June.

Sterling fell 0.6 percent on the day at $1.6405 .

The euro , meanwhile, hit an 11-week high against sterling at 87.27 pence, according to Reuters data.

Traders said the euro was pushed past a key options barrier at 87 pence, setting up further gains in the pair, while analysts said expectations for persistently low UK interest rates were weighing on the British currency.

The Federal Reserve’s Jackson Hole meeting over the weekend offered a variety of opinions about the global economy, with Fed Chairman Ben Bernanke acting as the cheerleader for growth.

But traders are keen to see how the euro zone economy fares, especially after higher-than-forecast purchasing managers’ index readings last week. Germany’s Ifo survey of business sentiment will be key this week, analysts said.

The U.S. Conference Board will release its August consumer confidence index on Tuesday, followed by the Reuters/University of Michigan consumer sentiment snapshot on Friday.

Nouriel Roubini, professor at New York University’s Stern School of Business and one of the few economists who accurately predicted the magnitude of the current crisis, wrote in The Financial Times on Monday that there’s still a “big risk” of a double-dip recession.

Allan Meltzer, a political economy professor at Carnegie Mellon University, also told Reuters that the flood of money the Fed and Treasury have injected into the banking sector and economy since the crisis began will soon threaten the dollar.

“Will the Chinese continue to buy the trillions of dollars worth of debt that the Treasury intends to put out every year? We don’t know, but if not, the pressure will be on the Fed to keep buying it, and my guess is that’s going to be inflationary over the next couple of years, and the dollar will suffer,” he said.

Aug 24 (Reuters)