I’ve been reading Bill Bonner for eight years. I’ve read all his books. He gets it. His advice is sound. Cash is king today, but don’t sell your gold. Hold on. The USD will meet its maker in the not too distant future. Timing is everything.
Uneasy Lies the Head that Wears a Crown
Bill Bonner
Provided as a courtesy of Agora Publishing
& The Daily Reckoning
Sep 28, 2011
Cash is king.
Ai yi yi…
Last week was the worst for investors in 3 years. Even gold melted down, as we thought it eventually would.
The only things to go up were US Treasury debt and the dollar. As expected, the Great Correction is doing its work.
So far, the stock market has held up as well as it has. But now it seems to be selling off. And gold is selling off too.
Rich people buy gold. They can afford to. They know the end of the dollar is coming – sooner or later. They can wait.
But the middle classes need dollars. Debtors need dollars. Consumers need dollars. Almost everybody needs dollars. In a correction, cash is king. And the king of kings is the dollar. Here’s CNN confirming what Dear Readers already know:
… the data [from the census] gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.
For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996.
And over the 10-year period, their income is down 7%.
“Economists talk about the lost decade in Japan. Well, with these 2010 data, we can confirm the lost decade for the American middle class,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities.
Sure, it’s fair to say Americans at all levels of income, from rich to poor, were hit hard in the decade that started with the dot-com boom and bust, and ended with the Great Recession.
But according to the census data, those losses disproportionately hit the lowest 60% of Americans, while the richest 40% actually gained wealth, relative to the entire US economy.
The middle classes need dollars. They want dollars. Because it’s a currency – believe it or not – that you can still trust. No thanks to Bernanke, Obama, et al. Instead, our gratitude goes to the Great Correction itself. It’s doing the work of an honest central bank. It is making the dollar respectable again. Thanks to the Great Correction the greenback can hold its head up. Uncle Sam’s money is Number One.
How so? In a correction, almost everything goes down. And almost everyone gets scared that his investments and his savings (which he put into stocks on the advice of his financial magazine) will go down too.
Your editor says that in the long run gold will be a better place for your money than dollars. But everyone can’t wait for your editor to be proved right. Most people have bills to pay. And you don’t pay bills with gold. You pay them with dollars.
And imagine that you are a European or an Asian investor? What are you going to do with your money? Put it in a French bank or a Greek bond? Nope. You want something safer. You want a US treasury bond.
And as long as the Great Correction is allowed to continue…US Treasury debt will be a good place for your money. The trouble is, we don’t know when the feds might run in, like a bull in a china shop, and break all the teacups. So, here at The Daily Reckoning at least, we’ll stick with our gold through this correction, confident that when we come out the other side the dollar will be among the porcelain shards and gold will still be standing tall.
When we entered this Great Correction we figured the process would take a few years. We felt like a judge had just given us a prison sentence.
“Five to ten,” said your honor.
Now, it looks like it will take longer. We figured the feds wouldn’t be able to finance their deficits for very long. That would force them to hit the panic button and begin dropping dollars from helicopters. But what the market is showing us now is that this Japan-like phase can last a long, long time. Because the correction itself is making the dollar and dollar debt more attractive!
Get this: the yield on 10-year US Treasury debt is now lower than the yield on the S&P. The longer the correction goes on, the deeper it goes, the more people will want the safety of US notes and bonds. And the more they buy Treasury debt, the lower go the yields.
Meanwhile, stocks should go down, pushing up yields. That’s what happens in a correction. That’s what happened in Japan over the last 20 years.
Most likely, we’ll see yields of 5% on the S&P before this is over. That’s because prices will be cut in half.
Meanwhile, we’ll see yields on bonds go down to 1% or so on the 10- year bonds. This correction means business. It appears to be even more powerful than we imagined. It is not merely correcting a bull market and a credit bubble. We don’t know for sure, but it may be correcting an empire, modern government, the dollar-based monetary system, and who knows, maybe an entire civilization.
We’ll just have to wait to see how far it goes.
Dear Reader, do you recall our Daily Reckoning interpretation of the Iraq War? Well, we didn’t either.
But then we remembered. How could the Bush Administration do something so stupid? It played right into the terrorists’ hands. It put the empire on course for bankruptcy. While stirring up enemies everywhere.
Our interpretation of this was that George W. Bush and the neocons were not really trying to protect the US; they were trying to destroy it. Otherwise their actions made no sense. After all, they aren’t stupid.
In other words, they were just the witless tools of history. America had gotten too big for her britches. She had no foreign enemies that were up to the challenge of bringing her down. She needed to do the work herself.
So far, so good. The empire is going broke, and nobody seems able to do anything about it.
What’s more, the work of destruction goes on.
IMPERIAL INERTIA
Michael Brenner
19 September 2011The United States’ audacious bid to dominate the greater Middle East by military force is going at close to full throttle. This is despite the talk in Washington about over-extension, budgetary constraints, and war fatigue. Three stories this week reveal this dismaying truth while conveying the flavor of the prevailing mindset in the White House and the security agencies.
First is the revelation that the imperial-scale American embassy complex in Baghdad already needs expansion to accommodate the 6,000 mercenaries there to ride shotgun for the 9,000 civilian employees whenever they clamber out of their bomb-proof offices. That number includes roughly 1,200 US officials and 7,800 hired help from places like Bangladesh and Sri Lanka to do the laundry, clean the rooms and serve the food. The mercenaries also will guard the citadel and its satellite fortresses in Basra, Mosul and Erbil. These Blackwater types have the additional duty of escorting salesmen and agents for American businesses selling and servicing weapons for the Iraqi military. The forces commander-in-chief will be Hillary Clinton. They are in addition to the 10,000 troops that Washington is trying to impose on the reluctant Iraqi government and thousands more on call next door in Kuwait.
The second story recounts the Obama administration’s plans to escalate further the drone campaigns in Yemen and Somalia. There is a mild debate between those who want to restrict assassinations to (supposedly) identified leaders of al-Qaida in the Arabian Peninsula and al-Qaida in East Africa. Others are keen to expand the target list to include (suspected) foot soldiers; other radical Islamist groups who use violence against people on our side, i.e. remnants of the Saleh regime in Yemen or those who currently reside in the presidential palace in Mogadishu (with an American-sponsored African Union force having taken the baton from the Christian Ethiopians whom we earlier inflicted on the Muslim Somalis in a foregone bloody failure to hold at bay the Islamists); and even radical fundamentalist organizations only potentially hostile to the United States. In this latter perspective, a manifest threat to the United States is unnecessary for targeted killings and Special Forces operations. Again, there is no public statement of exactly why it is imperative to do these things that not only violate international law and national sovereignty but are counter-productive by their provoking bitter anti-American feelings among the natives – leading some to contemplate doing us harm directly.
Finally, there is the mounting military campaign to eliminate all anti-American groups in Northwest Pakistan – be they local al-Qaida residue, some variety of Taliban, the Haqqani network, their Kashmiri and Punjabi based allies and whomever else gets in the way.
Regards,
###
source: http://www.dailyreckoning.com.au/uneasy-lies-the-head-that-wears-a-crown/2011/09/28/
Bill Bonner
email: DR@dailyreckoning.com
website: The Daily Reckoning
Dave says:
Read Bonner’s “Empire of Debt” twice. Still not sure Bill Clinton was ever president. Guy sounds like the shills on MSNBC.
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30th September 2011 at 10:19 am
Administrator says:
WASHINGTON (MarketWatch) – The Federal Reserve has potent tools at its disposal to help the economy and is never “out of ammunition,” St. Louis Federal Reserve President James Bullard said Friday. In a speech at Point Loma Nazarene University in San Diego, Bullard said he expects modest growth over the next year but the slow pace of the recovery leaves it vulnerable to further negative shocks. If the economy deteriorates, the Fed should respond with more bond purchases with the amounts decided meeting-by-meeting, Bullard said. Simply promising to keep low policy rates for longer and longer periods of time may lead to an unwanted “Japanese-style outcome” of low rates and mild deflation, Bullard said.
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30th September 2011 at 11:12 am
ron says:
As long as they can print more money.
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30th September 2011 at 11:26 am
Dave Doe says:
As numerous sources have pointed out. Demand pulls money through the system. 70% of the economy is consumer spending The consumer is down for the count. Anything that does not look to liquidate the consumer’s debt and restore aggregate demand is doomed to fail. Yet, almost all policy is on the monetary side aimed at helping the banks. It won’t work.
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30th September 2011 at 11:33 am
Smokey says:
Gold hits $500 per ounce before it hits $2500 per ounce.
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30th September 2011 at 12:48 pm
AWD says:
Smokey:
Another sage prediction, $500 gold? A mortal lock if you short gold indexes or buy short gold ETFs? Yea, right, the Chinese are loading up on gold, and are taking tons of it out of circulation. The reason? I’ve presented an article for your consideration:
Is China Buying Gold to Challenge the U.S. Dollar?
The rising price of gold and silver has caught the attention of economic powerhouse, China .
It is said that gold prices have not increased, fiat currencies have decreased. This is a concept not lost on the Chinese. A new Wikileaks release reveals the thought process behind gold and fiat currencies such as the U.S. Dollar and Euro. The new release says, ” China increases it gold reserves in order to kill two birds with one stone. The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): According to China’s National Foreign Exchanges Administration, China’s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. Dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. Dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.”
Looking at the latest world official gold holdings from the World Gold Council, China is currently ranked 6th in gold holdings with 1,054 tonnes. This represents only 1.6% of their total foreign reserves. The United States still maintains a significant lead on China in terms of gold reserves. Per the same World Gold Council report, the U.S. has 8,133 tonnes of gold, which represents 74% of total foreign reserves. Germany is the closest to the U.S. with 3,401 tonnes, representing 71.4% of total foreign reserves. China still has a large amount of gold buying (and U.S. Treasury selling) to do if they hope to challenge the world reserve status of the U.S. Dollar. However, if China continues to demand gold, current gold prices will look quite cheap further down the road. Consumers in China are demanding gold as inflation and other economic worries linger. China’s share of global demand for gold has increased from just 6% in 2000 to 18% in 2010.
http://wallstcheatsheet.com/gold/is-china-buying-gold-to-challenge-the-u-s-dollar.html/
The Chinese are trying to get their hands on as much gold as they can get, and are even encouraging citizens to stockpile gold, all in an effort to undermine the dollar. They have trillions in reserve (dollars and gold), the U.S. has a $14.5 trillion deficit, growing at $1.5 trillion per year. Who is going to eventually win this battle? The flied lice eating Chinese.
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30th September 2011 at 1:06 pm
Smokey says:
AWD,
I don’t disagree about the attractiveness of gold. I personally expect it to be going for about $40,000 to $50,000 per ounce in the next five years. And I expect silver to hit at least $1500 per ounce in that time frame.
In the meantime, I think there is a good chance that gold takes a steep slide, either on its own or through manipulation, crushing a huge number of gold bulls before starting its massive rally.
Well-loved. Like or Dislike:
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30th September 2011 at 1:21 pm
Persnickety says:
“Gold hits $500 per ounce before it hits $2500 per ounce.”
Cramer, is that you?
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30th September 2011 at 1:24 pm
AWD says:
Smokey:
With all the money your going to make on college football this weekend, you could probably try to corner the gold market on Monday. Just an idea…
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30th September 2011 at 1:24 pm
Smokey says:
AWD,
Explaining to me why China is going to come in first against the USA is like explaining to me why the Philadelphia Flyers will come in first versus the Lansdale Crusaders.
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30th September 2011 at 1:27 pm
AWD says:
Oh yea?
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30th September 2011 at 1:31 pm
Persnickety says:
Smokey at 1:21 actually makes sense. The big “IF” is whether we’re already in the bottom of that steep slide. It’s better to pay a little too much buying early than to miss your buying opportunity completely.
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30th September 2011 at 1:34 pm
Golden Tool says:
Dude, ok if the system implodes who’s holding all the cards. If the dollar is no good who’s pegged to it? The fed has been pumping the banks and businesses like crazy not much has “trickled down” to the people. Ask yourself why?
They know, just no one will admit it yet…
http://online.wsj.com/article/SB10001424052748704312104575298652567988246.html
http://krugman.blogs.nytimes.com/2011/07/02/cash-is-not-the-problem/
http://seekingalpha.com/article/296141-10-technology-companies-sitting-on-cash-while-bouncing-along-52-week-lows
http://www.usatoday.com/money/perfi/columnist/krantz/2011-07-20-companies-with-the-most-cash_n.htm
There could be a strong case of gold dropping large… this could happen if China implodes and has to sell. I would not expect gold to sit low very long and it will be a true panic if this happens.
Smoke what’s with your belief in China being unstoppable?
Do unto others.
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30th September 2011 at 1:48 pm
Smokey says:
Persnickety,
You wearing your pink “fuck me” pumps as you write? You headed out to ballet practice ?
Big football weekend. I bet you have your eye on one of those big black buck running backs that’s hung to his knees. You could pick up a few Colt 45 Malt Liquors, a bucket of KFC, a watermelon, and leave the stadium together. I bet reading this makes you persnickety.
You could chaperone blackie back to the hood and stop by the crackhouse for some hot action from him and all his bros. Just think how fun it would be to giggle and get persnickety all night. Of course, you wouldn’t really enjoy listening to Trick Daddy, Snoop Dog, Fifty Cent, and Ludacris, but you would pretend that you were a rapper from way back, just to keep that delicious black meat nice and hard.
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30th September 2011 at 1:53 pm
Dave Doe says:
Smokey,
We can take the Chinese out whenever we want. The only danger is that we get to the point we can’t. We still have a blue water navy and nukes. End of discussion. All else is posturing.
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30th September 2011 at 1:54 pm
Smokey says:
Dave Doe,
That blue water navy is —as opposed to what? A green water navy? Perhaps a yellow or purple water navy? Or is it pink, red or orange water navy? Maybe a white water navy?
Please clarify, as the distinction is vital.
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30th September 2011 at 1:57 pm
Dave Doe says:
We have a blue water navy by the strategic military definition of being able to project naval and air force to all ends of the earth – even if we go broke doing it which we might.
If we had a brain, we’d set the chinese straight and tell them how we’re going to do trade. Take it or leave it. We (as a nation) don’t need the Chinese (only Walmart and our corrupt trade officials do). Let them try to collect their debt. Pay it back
in Bernacke bucks.
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30th September 2011 at 2:06 pm
Administrator says:
Well-loved. Like or Dislike:
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30th September 2011 at 2:08 pm
Dave Doe says:
“I was at fight the other day and a hockey game broke out.” I know that’s really old.
Sports teach kids to work together in teams. I learned a lot more participating in team sports than I ever did in the classroom. Even though ,we never won a championship.
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30th September 2011 at 2:12 pm
Colma Rising says:
Haha!
The Crusaders after defeating the Infidels.
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30th September 2011 at 2:31 pm
AWD says:
Admin:
They let Asian kids play hockey? What is this world coming to?
I suppose it’s to explain the geometry and trigonometry of deflected pucks and hip checks to the white kids.
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30th September 2011 at 2:37 pm
AWD says:
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30th September 2011 at 4:11 pm
Novista says:
Dave Doe
I am sick of the 70% quote as though it is a law of frigging nature. In 2001 it was 64.x% and 64 was the longterm average with minor variations. What brought it up (down? in realistic terms) was the Home ATM, the eight credit cards and the rest of the spend easy money you do not fucking have.
And … fighting the last war is such a drag. Yes, before the carriers was the battleship and those carriers were the game changer in the 40s. Now’, they’re floating coffins of the blue water navy. Tecyhnology has passed them by. Even Yamamoto would agree.
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30th September 2011 at 4:09 am