Don Miller (Money Morning):
The U.S. Federal Reserve may take an unorthodox approach to raising interest rates by paying interest on bank reserves rather than relying on traditional open market remedies, as it exits from its long-term fiscal stimulus programs, Reuters reported today (Tuesday).

Paying interest on reserves is mostly untested and would represent an unexpected twist in the Fed’s response to the financial meltdown.

“In the old days … the Fed controlled the federal funds rate with open market operations,” Antulio Bomfim, a former Fed economist now with Macroeconomic Advisors LLC in Washington told Reuters. “Now, at least in this period when reserves are over-abundant, the way the Fed hopes to raise the federal funds rate will be primarily by raising the interest rate it pays on reserves.”

Usually, when the central bank wants to set a target for the federal funds rate it buys or sells Treasury securities on the open market, influencing interest rates by deploying or withdrawing capital.

By paying interest on reserves, the Fed makes it attractive for banks to keep their money at the central bank as long as interest rates in private markets are lower.

By doing that, the Fed can put a floor under the lending rate that banks charge each other for overnight loans, which is the central bank’s traditional choice for influencing the economy. Open market operations to raise interest rates would be relegated to a supporting role in the initial stages of tightening.

In order to spark an economy mired in deep recession . . . Click here to read the rest of Mr. Miller’s article.

Bill Bonner (The Daily Reckoning, UK):

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

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

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

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

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

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

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

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

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

Still… housing is not cooperating.

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

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

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

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

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

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

Can anything stop stocks and gold?

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

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

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

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

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

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

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

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

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

And Warren Buffett came out saying he’s buying equities again. All the while, the dollar is sitting at an 11 month low, and gold touched $1006 this morning.

As I perused the underground, I came across a piece by Jeff Harding of the Daily Capitalist that I had to share. He begins by asking, “how has the playing field for our economy changed and how will those changes affect our future? The answer to these questions will determine the future of the world’s economies.”

He then outlines the 7 mega-trends that will dictate our economic future. We’ve touched upon many of these ideas in previous issues. But here they are:

• Megatrend No.1. The culture of consumption is broken and won’t return to former levels. This is the key to everything.
• Megatrend No.1. The culture of consumption is broken and won’t return to former levels. This is the key to everything.
• Megatrend No. 2. Consumers will continue to increase savings to prepare for retirement.
• Megatrend No. 3. Declining U.S. consumer demand will continue to negatively impact the world economy.
• Megatrend No. 4. Deflation will continue for some time.
• Megatrend No. 5. Home ownership rates will decline to more historical levels of, say, around 66%, down from the high of 69% during the boom, which will keep a lid on home prices.
• Megatrend No. 6. Government stimulus and recovery programs only delay recovery and deepen the pain for workers.
• Megatrend No. 7. Massive federal deficits will double the national debt, result in higher taxes, and will act as a permanent drag on the economy.

If you have a chance, you should check out the piece in full. It is jam packed with facts and figures that will give you something to chew on for breakfast, lunch and dinner.

So where do these trends all lead?

All cycles eventually bottom out and growth resumes. The timing of any recovery is impossible to predict and for the most part it depends on what the government will do (or, hopefully, not do). The more the government interferes with the recovery process by propping up bankrupt banks, by manipulating the economy with fiscal and monetary stimulus, by creating a huge national debt, and by increasing taxes, the longer it will take.

With commercial real estate in serious decline, deflation will continue, and we’ll see more bank failures. While we may see a “bump” in GDP in Q3 and Q4, the liquidation of commercial real estate assets and other debt will accelerate. At some point, deflation will stop, and asset prices will find a bottom, as housing is starting to do now. My view is that the post-deflation economy will remain sluggish with high unemployment for some time. I believe that, unlike Japan, we will eventually see inflation.

There are significant differences between our economy and Japan’s and the comparison to Japan in the 1990s may not be entirely applicable here. The Japanese were reluctant to let banks and companies fail, but, despite a few notable exceptions, we aren’t. This is a necessary requirement for recovery, and we are better at “creative destruction” than are the Japanese.

Also, we have a more dynamic culture of entrepreneurship than Japan, making us more responsive to a recovery. However, the main difference is that Japan’s debt was largely financed internally due to their very high savings rate in the 1990s (about 14%). While our savings rate will continue to grow, I do not believe it will keep up with rising federal deficits, and we will need to finance our national debt on the international markets. This will drive interest rates up and put pressure on the dollar.

Then I believe inflation will assert itself as banks renew the lending cycle. I believe the Fed will maintain its loose monetary policy in order to keep interest rates down to stimulate growth. Governments always find it expedient to create inflation to give people the impression that the economy is growing. The problem is that inflation will depress the formation of real savings necessary to finance growth, and like the 1970s, we’ll see stagnation and inflation (”Stagflation”). If inflation gets out of hand, then, for a while we may see price and wage controls.

After that, who knows? Cut the money supply as Paul Volker did, and drive up interest rates and bring on a new recession? Continue to inflate? That’s too far in the future and politicians don’t think that far ahead.

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

The financial services industry in the United States and Europe is still reeling from the financial crisis, shedding tens of thousands of jobs each month – even a year after the crisis hit its apex.

However, recent evidence suggests that the financial services industry in Asia – particularly China, which was largely isolated from the toxic assets that caused the crisis – is starting to rebound.

Indeed, many global financial firms are picking up hiring in Asia even as broad unemployment continues to rise. The reason: These financial firms want to be most active in the region of the world that has the best potential for growth, as well as the best opportunities for profit.

“The death of the industry has been greatly exaggerated,” Matthew Hoyle, founder of Matthew Hoyle Financial Markets, a Hong Kong-based headhunter for the banking and hedge fund industries, told the New York Times. “I am actually quite excited about the prospects for the rest of the year,” adding that “Things have picked up here — unlike in Europe and the United States, where that’s absolutely not the case,” he added.

Financial firms slashed 19,000 jobs in August – the 21st consecutive monthly drop for the industry, according to payroll processing firm Automatic Data Processing (ADP). The finance and insurance sector has shed 332,000 jobs since the recession began in December 2007. And the losses will likely keep piling on.

Labor Department data set to be released today (Friday) is expected to show the U.S. unemployment rate surged to 9.6% in August after dipping to 9.4% in July. From December 2007 to July 2009, the economy as a whole shed 6.7 million jobs.

“There’s a gradual improvement in labor markets underway in the sense that the monthly losses are diminishing,” said Joel Prakken, chairman of Macroeconomic Advisors LLC and an ADP spokesman. “The disappointing news it that we have several more months to go of job losses.”

There’s a similar story unfolding in Europe, as well. The unemployment rate across the 27 European Union countries rose to 9% in July from 8.9% in June, while the unemployment rate for the 16 countries that use the euro jumped to 9.5%, according to Eurostat.

As in the United States, many of the job losses have been sustained in the financial services sector. European banks and financial firms have cut 140,000 jobs since the third quarter of 2007, according to data compiled by Bloomberg.

About 84,000 European finance jobs are expected to hit the chopping block this year, according to a recent report by City of London Corp.That’s nearly ten times the number of finance jobs the region lost in 2008.

As the Europe’s largest employer of financiers, the United Kingdom will be most affected. It is expected to lose up to 35,000 finance jobs this year.

Employment at British, French and German financial services firms won’t return to its early-2008 highs until at least 2013 the report said. Even then, the United Kingdom will have 10,000 fewer finance jobs than it did in 2008.

The EU financial services industry employed about 1.4 million people and was worth about $315 billion (219 billion euros) at its peak in 2008, according to City of London. However, the entire industry will shrink 6.2% in 2009 and not return to growth until 2011.

“I’m fairly optimistic on the financial sector returning to profitability, but that won’t necessarily feed through to dramatic employment growth,” Alistair Milne, a senior finance lecturer at London’s Cass Business School, told Bloomberg.

Financial firms will be focused on “growth efficiency” over the next four years and “earning money out of the staff they’ve got at traditional businesses” such as fixed income, equity trading and derivatives trading, Milne said.

Asian Growth a Beacon for Financial Firms

While the financial services sectors in the United States and Europe continue to shrink, finance firms operating in Asia are already rebuilding.

Standard Chartered Bank said last month that it would recruit 850 bankers in the next 12 to 18 months. The majority of those hires will take place in China, but significant numbers will also to be added in Singapore and Malaysia.

“We have aspirations to double the industry growth rate and double our customer numbers in three years,” Foo Mee Har, Standard Chartered’s global head of premium banking, told the Telegraph.

Household wealth in Asia, outside Japan, was expected to grow by 12% annually until 2012, she added.

Meanwhile, HSBC Holdings PLC (NYSE ADR: HBC) said last week that it is recruiting more than 100 staff members in Hong Kong, and it plans to add 1,000 employees in mainland China this year.

Vincent Cheng Hoi-chuen, chairman of HSBC’s Asia-Pacific unit, even said that his company hopes Shanghai will grow into a financial center that rivals Hong Kong.

“I sincerely hope that Shanghai will become a financial center, as China is able to have two centers, given its size,” he said. “There should be enough capacity for companies to list in both or either market at the same time, despite more and more companies planning to go public in the capital market.”

And Australia and New Zealand Banking Group, which competes with Standard Chartered, expects to increase its staff in the retail banking business in China more than 10-fold to over 500 by 2012. The company is currently moving ahead with a plan to open more than 20 branches in the country by 2012, up from three currently.

In addition to these recently released plans:

• Bank of America Corp. (NYSE: BAC) added five senior staff to its Asia Pacific Commodities team and JP Morgan Chase & Co. (NYSE: JPM) added seven members to corresponding Asia commodities unit.
• Credit Suisse Group AG (NYSE: CS) added nine specialists to its Asia sales and trading business. (Credit Suisse’s Asia-Pacific operations are on track to contribute 25% of the firm’s total revenue in coming years.)

• And Citigroup Inc. (NYSE: C) said it plans to expand its commodity team in Asia at a “double-digit” pace in a bid to capitalize on rising demand for raw materials.

“Asia will be the biggest contributor to growth in commodity consumption,” Ananth Doraswamy, regional head of commodities, toldBloomberg in an interview from Singapore. “We will need more people in energy trading and metal sales, as well as agricultural products.”

A survey by Singapore-based recruiting firm Robert Walters showed that job advertisements in Hong Kong, Singapore, China and Japan jumped 6.4% in the April-June quarter from the three months prior, the New York Times reported.

That’s not surprising considering that unemployment in Hong Kong, Singapore, and Japan – at 5.4%, 3.3%, and 5.7% respectively – are still relatively low when compared to the United States and Europe. And while unemployment is still an issue in China, that country’s economy expanded by 7.9% in the second quarter, exceeding most analysts’ expectations, and lending credence to Beijing’s goal of 8% annual growth.

Indeed, the finance industry seems to have found greener pastures in Asia, where economic growth is still taking place.

“Asia is seen as a growth market,” Robert Walters’ Mark Ellwood toldThe Times. “Companies are not going out all guns blazing again, but there is once again an appetite to hire in certain areas.”

Finance Jobs Going Where the Growth Is – Asia ]]> http://www.contrarianprofits.com/articles/finance-jobs-going-where-the-growth-is-%e2%80%93-asia/20377/feed 0 http://www.contrarianprofits.com/articles/stocks-are-set-to-rocket-in-september/20319 http://www.contrarianprofits.com/articles/stocks-are-set-to-rocket-in-september/20319#comments Wed, 02 Sep 2009 11:38:40 +0000 Wayne Burritt http://www.contrarianprofits.com/?p=20319 There’s no question that the past year-and-a-half has been disastrous for investors. Since last March, the S&P 500 has lost nearly a quarter of its values, and many are still too scared to put their money back in the market in the market. But according to some of the best investors in the world, now is exactly when you should turn your eye to stocks…

Super-investor Warren Buffet once said that his investment philosophy was to buy stocks when others were fearful, and to be fearful when others were buying. Right now isn’t the time to be fearful along with the herd; it’s time to stock up on stocks.

As I predicted earlier in the year, right now the market is zooming…

Our forecast today: The government and mainstream media will soon be calling the end of the recession. Leading this feeble cause is the latest ISM manufacturing index, probably the most powerful argument for recovery we’ve seen yet:

This morning, the ISM said its gauge of manufacturing activity had risen to 52.9 in August – out of contraction for the first time since the recession began and the highest score since June 2007. Of course, things are a bit different now, but over the last 60 years, when the manufacturing sector returns to growth, the recession has already ended. That prospect is enhanced by the capacity utilization data we mentioned earlier this month — another recession-ending indicator now glowing green.
What’s more, pending home sales rose 3.2% in July, the National Association of Realtors also reported. With an index score of 97.6, that’s a 12% rise from this time last year, the highest level in two years and the sixth straight month of improving pending sales conditions.
Factor all that in with rising consumer sentiment, home price and stock indexes and we suspect now is around the time when the government will eventually declare the recession ended… which will make way for all kinds of shelved legislation and the political agendas that popularized the current administration in the first place. Then there’s that whole “double dip” dilemma… but we’ll save that for another five minutes.
Yesterday’s gloom from China helped push U.S. stocks down. The S&P 500 fell 0.8%. Today looks like it’ll be even worse. The market got a little bump from the manufacturing and housing data this morning, but as we write, traders are “selling the news” – big time. The S&P had fallen 2% by lunchtime.
“Cyclical equities, commodities and commodity currencies have already moved,” notes our macro adviser Rob Parenteau, “first to reflect the end of the Armageddon bet back in March, and then to reflect the end of the recession bet in July. We suspect investors will seize on the mounting evidence of an economic recovery to redouble their efforts to increase their positions in these asset classes.

“We will be surprised if 10-year Treasury yields do not break 4% by mid-October as this recognition spreads, and we suspect Chairman Bernanke, with the president’s nod for another term at the Fed, will be forced to start talking about normalizing the fed funds rate in Q4 (before actually doing something about it in Q1 2010) if he wishes to keep Treasury bond investors from heading for the hills. A Fed promising a near-zero fed funds rate from here to eternity will surely look far from appetizing to Treasury bond investors if a 4% real GDP growth environment unfolds.”

Wait, 4% GDP growth?

“If we were to naively use the experience of all the recessions of the post-World War II period as a guide, the nearly 4% peak-to-trough decline in real GDP to date in this recession would be the prelude to a first-year recovery growth rate close to 8.5%. This, of course, is unthinkable given the current mess. But if we got only half of that historically normal bounce — which we believe is the correct handicap, given the private sector deleveraging under way — the resulting 4%-plus real GDP growth over the next year would prove nearly twice the current 2-2.25% consensus expectation. Chairman Ben might just want to stick around for that.”

A better life through proven economic thought – that’s the Richebacher Society credo, which Rob has done a fine job carrying on. Find out how you can join their exclusive ranks here.
It’s worth noting, despite yesterday’s sell-off, the S&P ended the month up 3.4%. That spells a 51% shot since March, the best six-month run since 1938. Of course, the last thing you’d want to do now is take some profits… after the most notable winning streak in our lifetimes, the S&P will likely rise another 50%. It’ll probably go up forever.
China is celebrating a stronger manufacturing sector today, too. Its purchasing managers index (like our ISM) rose from 53.3 to 54 in August, signaling its sixth straight month of expansion and the best score in over a year. But is the China boom just a product of too much easy money? It’s starting to seem so… we’ll keep an eye on it.
Here’s another story fanning the economic recovery’s flames:The much-delayed Boeing 787 Dreamliner might finally take flight this year. Late last week, Boeing said that its long saga of delays and frustrations with the much-hyped jet are coming to an end. The first Dreamliner is now on track to leave terra firma by the end of the year, and the jet will actually be delivered to various international airways by the end of 2010.

Just how late is the Dreamliner? Japanese airliner All Nippon will get the first in 2010… since they were originally promised delivery by the start of the Beijing Olympics.

“My next buy recommendation is based on some of the historic changes happening in air transportation,” notes Chris Mayer, who chronicled the Dreamliner saga in the latest Capital & Crisis alert. “One of the key drivers of this change is what I call the Silk Roads of the sky. The aerospace industry has a $6 trillion backlog for new aircraft — which will double the global fleet over the next 20 years.

“In large measure, new and booming trade routes will link all kinds of cities and markets flung all over God’s green footstool. There are hundreds of new airports planned and thousands of new planes that will connect China to Africa to the Middle East and more.

“The thing about the new aircraft is that they are titanium intensive. Titanium is a silvery, lustrous metal that is corrosion resistant and has the highest strength-to-weight ratio of any metal. Aircraft manufacturers love titanium, especially now that the market has crushed the price of titanium, along with everything else.

“That creates some space for us to buy a quality operator now. Titanium prices are way down. Sentiment is terrible, with most analysts only lukewarm to the idea. Most of the near-term news is bad. That gives us a great price to get in on a promising long-term story. Of course, this is already in the process of changing, thanks to the Dreamliner announcement.”

So what’s the best play on this trend? Check out your latest Capital & Crisis alert.
The Canadian economy contracted more than anticipated in the second quarter, the Canadian government admitted today. GDP contracted 3.4% in the period, compared to the 3% Canadian traders anticipated. The first-quarter GDP decline was also revised downward to 6.1% — the worst annualized drop on records dating back to 1961.
“I told you so!” Byron King exclaimed to us in a one-line e-mail sent very early this morning. He’s really not the shouting/gloating type, so we quickly clicked the link he sent along and saw this, the headline of today’s New York Times business section:

“China Tightens Grip on Rare Minerals”

The Old Gray Lady is “breaking news” today on China’s rapidly increasing dominance of rare earth metals… those bottom of the periodic table elements crucial to producing just about every high-tech gadget. The NYT noted that the Chinese government is just shy of cornering the market of rare earths, and that its export quotas have been shrinking every year, with this year on track to be the smallest yet.

Readers of The 5 or Byron’s Energy & Scarcity Investor will likely yawn and turn the page… they have been reading about this since March 2008.

“There are more than a few stock pushers out there,” notes Byron, “explaining to people how to ‘profit from the squeeze in rare earths.’ But there’s really only ONE decent publicly traded company that will give you a long-term return in rare earths.”

That company is in the Energy & Scarcity Investor portfolio. Learn about it here.
Speaking of rare metals, gold’s been keeping an awfully low profile lately. Over the past 30 days, the spot price has kept to a $35 range, bouncing mostly between $940-955. The spot price is in the higher end of that paradigm today, at $952 an ounce.
The positive manufacturing numbers stopped the oil sell-off today. After a nearly $3 fall yesterday, light, sweet crude arrested its fall at $69 a barrel.
The dollar is just a bit higher. Up a few tenths of a point, to 78.2, the dollar index is still less than a point above its 2009 low.
“Inflation or deflation?” a reader asks, referring to Bill Bonner’s forecast that betting on inflation feels too easy. “I can tell you this…

“I live on a very strict budget, and I am not stretching on this statement. In the last 18-24 months, my bills have gone up considerably. I will give you some examples. Thirty-nine ounces of Maxwell House Coffee was about $5.50 a year ago, and today it comes in a smaller (34.5 oz.) package for about $8.00. WOW! A 5 lb. bag of sugar was around $1.99. Now it is $2.29. Dry cereal used to come in a larger package also, and went from $2.00 a box to a whopping $2.39. Soft drinks: A six-pack of 24 oz. bottles was $3.00 and NOW it is an unbelievable $4.29! Dog food from $8.99 to $10.99.

“My cable bill has gone up two or three times in the last two years (includes Internet and TV). My electric bill has gone up just a little.

“What went down? My homeowners insurance and natural gas bills

“The problem here is that the difference between what has increased in price and what has decreased still leaves me in the hole. In other words, after all the bills are paid, I am paying MORE this year!”

Uncle Sam responds: That’s simply not possible, madam. Consumer price inflation is down 2.1% over the last year, the largest decline since 1950. If people like you were right, it would undermine our whole methodology. There must be something wrong with your budget.
“Given the data from the Rasmussen poll you mentioned,” a reader writes of Rasmussen’s great “throw the bums out” poll, “I guess if there were an all-or-nothing choice when people voted we might finally make some progress in fixing Congress. I think the data are misleading, though, since polls have shown these types of numbers in the past, but of course, when it gets right down to it, people re-elect their local pork provider (over 90% of incumbents win in Congress).

“One poll I saw probably 10 years ago asked if Congress was corrupt, and 90% replied yes, but when asked about their own local rep, people said he was one of the few good politicians. This is the problem: All these guys are just horse-traders for their local projects, many of which we don’t need, especially with trillion-dollar deficits staring us in the face for the foreseeable future. Who knows, as the fallout from the never ending bailout programs recedes, perhaps people will start voting some of these idiots out of office — Rep. Rangel, with his forgotten income and taxes, might not be the best guy to run the Ways and Means Committee for starters. Keep up the great work.”

The 5: Thanks, it’s our pleasure.

Sourc: Manufacturing Rebound, A Contrarian Play, Rare Earths and More!

This afternoon, we have been invited for a private tour of a grotto not far away. According to our information, the grotto was sealed off by falling rock hundreds of years ago. Thus it was protected and preserved remains of human habitation from 30,000 years ago.

“Yes, there is a span of about 10,000 years in which there is little evidence of human habitation in Europe,” said the owner. “Maybe humans almost died out during that period; we don’t know what happened. But when this cave was opened, we found some remains that were dated from that era. It’s a remarkable find. A group of 20 scientists has been working there all summer. They told me they found 1,000 artifacts a day. Of course, we’re not talking about statues and battle axes. Most of these discoveries are bone fragments… maybe even grains of cereal…”

We’ll find out more this afternoon…

Meanwhile, we turn our attention to the world of money. And we begin by asking:

Just what are we trying to figure out?

Well, we want to understand what is going on… don’t we?

And we want to try to guess about what is likely to happen next, don’t we?

We’d like to know, for example, whether stocks were going up or down… and whether this is a good time to buy property… or gold… or Treasury bonds. We’d like to know, wouldn’t we?

Of course we would. Unfortunately, ‘it is not given to man to know his fate,’ as the ancients put it. All we know is what happened in the past… and the fate of men who came before us… Even that we know only in a wispy, uncertain kind of way. All we have are stories…

For 40,000 years – maybe longer – our ancestors have walked the very earth where your editor puts his feet. They lived. They died. What did they know? Scientists say they were as smart as we are. What did they talk about? What did they think about?

“Every time something is given, something is taken away,” we suggested over dinner last night.

“No, that’s not right. You’re saying that life is a zero-sum game… that it can never get better… that it can never really improve… that there can be no real progress…” Elizabeth replied.

“Well, not exactly… I’m saying that there are no free lunches in nature. That if a man is smarter, he is not likely to be faster too. But I’m not saying anything particular… or scientific… I’m just announcing a general principle… more like a vague intuition about the way things work. According to one theory, for example, mankind migrated from Africa to Europe. In Europe, during the Ice Age, he encountered a great challenge: cold weather. Most humans and pre-humans probably couldn’t survive it. But some did. And they did by evolving into maybe smarter… maybe slower… people with bigger heads. According to the latest thinking on the subject, the bigger brains were a disadvantage in warmer climates… because they got too hot. I guess they took up too much energy too. But they were an evolutionary necessity in colder climates… where the cold weather not only made possible a hotter head, but also made it a necessity. People needed bigger brains to anticipate the change of seasons and save for winter, for example. They had to see what was coming. They had to look at what was coming… and prepare for it. They had to work together too… to hunt large game… and to fight off competitors. Those who couldn’t do so died out. Well… that’s the theory…”

Every day, here at the Daily Reckoning, we give you information on the latest trends and events in financial markets. But everybody has access to the same information. And what is information, anyway? What is it worth? What does it mean?

For thousands of years, people exchanged information. Then, it must have been a different kind of information… things we can barely imagine… about where animals were getting their water… about where to find seeds and how to avoid sickness… how to prepare for winter… and how to fend off wild animals. Then, the dominion of the human species was not so sure. There were saber-toothed tigers, lions, wolves, even mastodons… giant sloths… Early man was probably as often prey as hunter. He had to be on his toes to survive.

Information was one thing. But there was more. He needed wisdom… and technology… as well as facts. He had to learn to store food for winter as well as beat back attacks by wild beasts. He had to know how to make cloaks out of animal skins… and how to stock firewood for a rainy, snowy winter… and how to find shelter.

We imagine tribes sat around the campfire and told stories. The stories reported victories and defeats… disasters and triumphs… heroes and enemies. But the stories were more than just information: they carried lessons… moral lessons… about what to do and what not to do.

That is the tradition to which we are heirs here at the Daily Reckoning. We pass along information: but without a story, the information is just noise.

Our story is the story of the seasons. It’s the story of heroes and villains… of fatal flaws and inevitable disasters.

The common flaw is an old one. The Greeks couldn’t seem to tell a story without mentioning it. ‘Hubris’… the kind of pride that goeth before a fall… the arrogance that leads people to think they can get away with something… that they not only can know their fates… but that they can control them.

Today, Ben Bernanke is our tragic hero. His flaw is as obvious as his challenge. He thinks he can stop the world from turning… stop the seasons… avoid the hard, correcting winter by tempting the sun with bailouts, stimulus and cheap credit. His arrogance is an affront to the gods.

The old tales tell us what will happen. He will fail. But when… how? That is a different story. It is the story future generations must tell. We must live it.

Source: Don’t Count on China

The investment world is splitting in half. Now, more than anytime in the last 18 months, the winners are diverging from the losers. No more does a single macroeconomic event steer the markets.

We are back to individual fundamentals and microeconomic themes. That means it is a stock-picker’s market.

Perfect evidence of this phenomenon comes from two companies with similar product offerings but widely divergent business models, GameStop (NYSE:GME) and Gravity (NASDAQ:GRVY).

Shares of GameStop are down by over 5% so far today as the Street digests the firm’s latest earnings figures.

With wary consumers unwilling to open their wallets, especially on non-essential items like video games, the company’s top line shrunk by 3.7% over the past three months.

The $1.74 billion in revenues translated into $38.7 million in second-quarter profits, a plunge of over 30% from the prior-year period. Making the figures appear even worse, same-store sales dropped by 14%.

The figures prove that growth was nowhere to be found, which is bad news as the company prepares to enter the critical shopping period that is the fourth quarter.

With chances of significant growth running slim, executives were forced to lower their earnings expectations for the remainder of the year. GameStop now estimates a full-year profit of $2.64 per share, down from its previous prediction of $2.93.

While GameStop may be representative of the nation’s consumer spending, it is not indicative of the kind of revenue-generating power held by some of the gaming industry’s strongest, leanest competitors.

When it comes to running a lean business, few can do it as well as the Asians, home of almost all modern efficiency practices.

While GameStop wonders where everybody went, a growing competitor, South Korea’s Global Gravity, is celebrating the fast-growth it has found in the online gaming sector.

Thanks to the drastically reduced costs and increased exposure of the Internet, Global Gravity is poised to take over as a planetary powerhouse in the gaming industry.

Size doesn’t matter

With its Ragnarok Online product soaring in popularity across the globe (it has strong exposure in 62 countries on five continents), Global Gravity shareholders are wondering what the future holds.

Today, they are getting a glimpse of the possibilities as shares of their company are surging ahead by more than 20%, thanks to a strong, intra-day volume spike.

The diverging pricing action between these competitors teaches us an important lesson. As I mentioned above, when the nation pulls out of a nasty recession, corporate fundamentals will become more and more important.

Margins, debt, free cash flow and market share will show the obvious difference between winners and losers.

We know consumers will not be dumping their savings accounts anytime soon. That means companies will be forced to stretch every dime of revenues as far as they possibly can.

Efficiency is not a wildly common concept here in the States. GameStop proves it. For companies based in Asia, however, it is not only a way of life, it is a means of survival.

Gravity may only have a market valuation of $69 million (compared to GameStop’s figure of $3.9 billion), but we all know it is not the size of your company that matters.

It is how you use it.

Source: International Small Caps: Size Doesn’t Matter