It’s not those marvels of the ancient world that I remember most vividly, however, or the majesty of the Sphinx, or the sweep of the desert beyond. It’s the camel abduction.

On the way to the pyramids, our guide told us to keep a wary eye on the local peddlers. “Having someone take a photo of you in front of the pyramids should cost a dollar,” he said. “A camel ride is about three dollars.”

Minutes later, as I was gazing up at the imposing Pyramid of Khufu, an older gentleman invited me to take a jaunt on his camel, a mangy beast who was, unfortunately, standing just upwind. As I looked on with mild interest, he whistled for the animal to kneel down.

The next thing I knew he was firmly escorting me onto the saddle and whistling for the camel to rise. Our group laughed and cheered as the camel driver led me off toward a rocky outcrop eighty or so yards away.

As soon as we were out of sight, however, the driver brought the camel to a halt and I was quickly surrounded by eight or ten Arab men shouting angrily at me in broken English to pay them each twenty dollars for the ride…now!

I said no and told the camel driver to take me back. He turned away as if he couldn’t hear me.

The group of men now pressed in tighter, feigning greater anger, as if I had somehow stiffed them all for the ride, which had so far lasted about 45 seconds. “Pay us now!” they shouted again, their hands stretched upwards.

We were at an impasse. I wasn’t about to pull out my wallet in front of this pack of hyenas. And I was too high up and boxed in to jump down. The men continued shouting and waving their arms. I shook my head and sat on my wallet like Jack Benny, wondering how this was going to play out.

About then, a fellow tourist wandered by, recognized what was going on and barked at the men to back off. “He said he would pay you,” he insisted. “Let him go.”

At this, the Arab men melted away and the camel driver turned and led me back.

I’m sure this incident would have infuriated some, but I was more amused than rattled. I had never sensed any real danger. The men didn’t threaten violence or brandish any weapons. This was sheer intimidation, a tawdry little shakedown. And a reminder that Egypt is not Des Moines.

Back home, I discovered that friends and colleagues were only vaguely interested in the ruins of ancient Greece, the history of Jerusalem or the serene beauty of the Amalfi coast. “Tell us again about the camel abduction,” they said.

Apparently, it was the highlight of the trip.

Not all travel is a success. With expectations high, things can go awry, especially in a foreign land. But even the occasional bad incident makes a good story. (And, perversely, the worst trips make the best ones.)

Most of my travel abroad, however, has not only been great fun but the best part of my education. This idea was once widely accepted.

In his Essay Concerning Human Understanding, John Locke argued that we absorb knowledge from our immediate environment. If you spend too much time in one place, you can “use up” its educational value. In order to grow, you must change locales.

In Victorian England, for example, travel abroad was more than just a mark of privilege. A “change of scenery” was a mandatory part of an upper-class education. The Grand Tour was the capstone of scholarship.

It was a rite of passage that marked a superior understanding of the world. Young aristocratic gentlemen (and later young ladies) set out from the white cliffs of Dover for the Continent with their personal tutors in tow to gain knowledge from the worlds of classical antiquity and the Renaissance, to understand the cultures and ideas that underpin Western Civilization.

Of course, the urge to travel – to open our minds and move beyond the familiar – is as old as mankind itself. It drove our ancestors out of Africa and around the globe. It motivated the ancient Romans to visit Verona’s amphitheater and Athens’ Acropolis. Philo of Byzantium was already listing his Seven Wonders of the Ancient World in the third century B.C. The spirit of adventure, the quest for understanding, and, of course, the dream of great riches pulled Marco Polo to the East and men like Columbus and de Soto to the West.

Travel broadens the mind, increases tolerance, and connects you with your fellow human beings. The more we understand others, the better we understand ourselves.

There are good people and unusual sights everywhere you go. Venture widely enough and you’ll enjoy exotic foods, extraordinary architecture, and jaw-dropping landscapes.

Exploring the world is like attending a classroom without walls. It enriches and changes you. The only requirements are patience, curiosity and a bit of money. (A traveler’s tip: Pack half the clothes you think you’ll need and twice the cash.)

Travel abroad fills in the gaps in our knowledge, dispels our preconceptions and offers endless surprises. Those who forego the opportunity truly don’t know what they’re missing.

It’s sad to go through life thinking foreigners are just strangers who dress oddly, eat bizarre foods, speak in incomprehensible tongues and drive on the wrong side of the road. As Mark Twain observed, “travel is fatal to prejudice, bigotry and narrow-mindedness.” A voyage abroad teaches acceptance and humility. When you travel, you are the stranger. You are the foreigner.

Your kids and grandkids should discover this too, beginning with travel closer to home. Years ago, I became mildly nauseated by all the toys and games my son and daughter were receiving on their birthdays and at Christmas.

A trip – even if it’s only to the local fair or the town next door – is a far better gift. For kids, every outing is an adventure. Why not spend your time and money collecting memories instead of more stuff?

It doesn’t need to be some place exotic, especially when they’re young. Just make for the horizon and see what’s out there. Traveling without knowing where you are going, without having any particular destination in mind, is one of life’s great pleasures.

Of course, there are plenty of resources to get your mind working on places you’ve never considered. One of my favorites is Journeys of a Lifetime: 500 of the World’s Greatest Trips, a lavish volume put together by National Geographic.

Another handy guide is the bestseller 1,000 Places to See Before You Die by Patricia Schultz. It’s is a fine way to investigate destinations both on and off the beaten track. I’ve gotten in the habit of taking it with me on business trips to make sure I don’t miss the local sights and events. (If you’re on a tight budget – or unable to travel overseas – there’s even a version dedicated solely to the U.S. and Canada.)

In short, travel broadens our perspective and sharpens our view of the world. Rather than imagining how things may be, we see them as they truly are.

Your mind becomes more tolerant, your heart more magnanimous, your opinions better informed. And once your perspective is enlarged, it never shrinks back to its original state.

Some people make a pledge to visit all 50 states, or all seven continents, or fulfill some other checklist. And that’s fine.

But your ultimate goal is not a place, but a new way of seeing things.

Carpe Diem,

Alex Green
for The Daily Reckoning

A Classroom Without Walls originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

In the clip below, from Jon Stewart’s Daily Show, you can learn more about Goldman’s renewed emphasis on correcting the problem that clearly matters most to investors… its dirty, dirty language.

This post came to our attention via Jesse Felder’s blog post on Goldman S@#%$ wanting to make sweet, sweet love to you.

Goateed Jon Stewart: Goldman Abolishing Swear Words, Now Makes Sweet Love to You originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

My immediate reaction, of course, and speaking as a true American, is to ask, “Huh? Gordon who?” as a clever way of reminding these British guys that real Americans, like me, don’t know about anything, or care about anything, that is not about America and/or Americans and how it affects us, as Americans, but mostly me, personally, as an American.

And this goes Freaking Mogambo Double (FMD) for some dirtbag, lying piece of worthless has-been British ex-prime minister named Gordon Brown, which rhymes with “clown,” which could explain how he is infamous for having sold all of Britain’s sovereign gold at the exact low price for gold, which makes you laugh at him – hahahaha! – even though the record-low price is more probably explained by the fact that he sold all of the gold, glutting the market and driving the price down.

Usually, I would just dismissively say, with a condescending sniff, “Bah! More euro-trash acting badly!” and let it go at that. I soon realized that if I had, then it would certainly have been my loss, as his next sentence is pure gold as regards the economic state of the world.

He wrote, to my delight, “You know the sort of thing – a glossy sheen of half-truths and not-quite-outright-lies disguising the true horror of the underlying economic situation.” Bravo! Wonderful!

He goes on, although almost anti-climactically, “A roll-call of good news to distract the attention, while all the bad stuff and caveats are buried in the small print or left to the imagination.”

Such a perfectly and precisely-correct pearl of prose is completely wasted on the aforementioned “euro-trash” of course, even though he is being more-than-kind to not even mention that we corrupt Americans have again surpassed our British friends, in that we also include bald-faced lies and “hedonic adjustments” to the data in our “official reports”! Hahaha!

Of course, he did not mention the fact that there is no good news, anywhere, and there never will be, because there is No Freaking Way Out (NFWO) of the economic mess caused by the creation of too much money for too long (in this case the foul Federal Reserve doing exactly that), except through massive bankruptcy and losses, and misery and suffering, and then some more misery and suffering until the government gets us into a distracting, devastating war, whereupon everything gets worse.

So maybe I was particularly attuned to references to “a glossy sheen of half-truths and not-quite-outright-lies disguising the true horror of the underlying economic situation” because of an article by Laurence Kotlikoff, referred to only as a “professor of economics at Boston University,” by The Financial Times, who writes, “during the past half-century, the US has sold tens of trillions of unofficial IOUs, leaving it with liabilities to pay Social Security, Medicare and Medicaid benefits that total 40 times official debt.”

I could feel my heart literally shudder at the thought of how much money we are talking about at “40 times official debt” but although nobody “does the math,” it doesn’t take a rocket scientist to intuit that multiplying 40 times $13.3 trillion is a lot of money to owe, especially when the entire GDP of the Whole Freaking Country (WFC) for an entire year is little more than $14 trillion! If that!

Yikes! My hands visibly shake to realize that we’re on the hook to pay 40 times what we make as an entire nation, but people can’t get a loan on a house costing 6 times income, although we are already paying, collectively, 50% of GDP in federal, state and local taxes, which is not to mention all the layers and layers of government and agencies that are spending more than half of all the spending done in the Whole Freaking Country (WFC)! Yikes!

Yikes, indeed! Look at my hands shake! Listen to my heart going thumpa-thumpa-thumpa in fear! Wow!

Mr. Kotlikoff makes no mention of my shaking hands or veins pulsating ominously in my forehead, perhaps because it is obvious that these infirmities are the least of my many, many problems, one of which is that I am Completely Freaked Out (CFO) because, as he says coincidentally, “The US is one foot away from a deep and permanent economic grave.”

Anyway, maybe the realization that “We’re freaking doomed!” is why he concludes his piece with the gloomy last sentence “It is far past time to do meaningful long-term fiscal planning, level with the public, and implement radical reforms that permanently put America’s fiscal house in order.”

Now, that is scary! “Far past time!” Just like I have been screaming all this time!

In fact, if I was writing the piece, I would have at least concluded with a hopeful, uplifting sentence like “So, buy gold, silver and oil with a frantic abandon in preparation for a final, ruinous cataclysm and almost certainly a huge, deadly war, which is the lesson one learns from what has happened all the other times in history when moronic governments borrowed too much money and/or when the greedy banks created too much money, and especially what happened in all the other times of history when the money was made of mere paper and other easy-to-produce yet completely worthless numeraires like computer bits and bytes, which can’t even be seen, for crying out loud!”

As a literary note, I would have closed the article with, “Whee! This investing stuff is easy!” but I was advised that The Financial Times is a little too classy a place to parade my embarrassingly childish glee at the happy, happy fact.

The Mogambo Guru
for The Daily Reckoning

US Economic Outlook: Indebted to Death originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

From the Kitco Commentator’s Corner:

“It has long been recognized that Portugal is active in the gold market. It had loaned gold to Drexel Burnham in the 1980s [...] So it is not farfetched to assume that Portugal had loaned its remaining gold to a commercial bank, which meant that Portugal was exposed to the credit risk of this bank.

“Now consider for a moment, what if that gold loan had been made by Portugal to Citibank or some other zombie bank? It wouldn’t look very good on Portugal’s balance sheet to be owed 380 tonnes of gold by a near-bankrupt institution. Given that Portugal is taking steps to ‘to reduce its funding costs’ as the FT reports, it would be logical for it to get rid of that gold loan.

“The best choice of course would be to demand repayment of the loan and put the 380 tonnes of gold back in its vault. That action though would drive the gold price sky-high, given the dearth of sellers of physical metal at current prices. Sky-high prices would blow-up the gold cartel and its efforts to continue capping the gold price as it operates its staged retreat, letting gold rise every year but not too much so as to not draw everyone’s attention to it and the resulting consequences of ever-depreciating fiat currencies. So enter the BIS.

“It swaps currency for the gold loan at the commercial bank. In other words, the 380 tonnes of gold is now owed to Portugal by the BIS, improving considerably the quality of Portugal’s balance sheet. After all, who would you rather have owing gold to you? Some commercial bank like Citibank or central banks’ own central bank, the BIS? Clearly, being owed gold by the BIS instead of a zombie bank would be one way for Portugal to ‘reduce its funding costs’ by improving the quality of its balance sheet.”

At this point, there are now more than a few BIS theories to go around. If you’re interested in another, one from Gordon Long is available from Safehaven, here. It offers a longer and more detailed account of why the gold swap likely took place with Portugal, and ultimately the explanation includes a theory that gold market manipulation is making it more possible for SDRs to replace dollars as the world’s reserve currency… if that sort of conjecture is your cup of tea. It’s at least an interesting read.

This latest theory came to our attention via a Kitco Commentator’s Corner post on deciphering the BIS gold swap.

Best,

Rocky Vega,
The Daily Reckoning

More Rampant BIS Gold Swap Speculation originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The thing economists said was nearly impossible actually happened last week. Yields on 2-year US debt hit a record low just as the Treasury prepares for another record-setting deficit. The supply of Treasury debt and the demand for it hit new highs – together. Stranger things have happened. But the strangeness of this event has caused a furor loquendi amongst economists. Usually, there are only two major ways of misunderstanding current events. Now there are at least four of them.

Party economists take the party line; whenever the party flags, get out more gin. Now, they say the recovery is proceeding, thanks to adroit demand management. Unsurprisingly, since they are the authorities, they claim that record low Treasury yields mean investors have confidence in the authorities. Deficits don’t matter, they add.

Another group – the Paul Krugman, Martin Wolf, Joseph Stiglitz wing of the neo-Keynesian faction – fear the recovery may stall, as it did in America in the ’30s and Japan in the ’90s. They say deficits do matter; they wish there were more of them. Low bond yields are cheap gin to them.

In opposition is a large group of “inflationistas.” (Marc Faber, Jim Rogers…). They believe the authorities have already added too much monetary juice. And now they’re afraid the feds will run bigger deficits and add even more monetary inflation. Along with tightened supplies and demand pressure from the emerging markets, this will cause consumer prices to rise more than expected. The dollar and bonds will be crushed.

A small group of ‘hardcore deflationists,’ meanwhile, believes falling yields prove the economy is sinking into a deep hole of debt destruction and depression. (Robert Prechter, Gary Shilling) These Jeremiahs expect the main US stock index – the Dow – to lose 95% of its value and the bond market to continue to rise.

Yet another school of thought confines itself to this Daily Reckoning. It acknowledges that nobody knows anything, but it doesn’t mind taking a guess. Herewith is its view, beginning with a critique of its opponents. Fair-minded reader, you be the judge.

Mainstream opinion is contradicted by the facts. Fewer people are employed today in the US than when the stimulus program began. Sales are down. Growth is falling. Credit is contracting. Even hairstylists and cab drivers know something is wrong.

As for the ‘inflationistas’ view, it makes sense. The feds add money. Prices should rise. But in Europe and America, the rate of consumer price inflation is generally ebbing. That’s what low bond yields are really telling us; they signal deflation, not inflation. Maybe the inflationistas will be proven right, eventually. But for the moment, prices in the developed world are going down; they should remain weak until this phase of debt reduction is largely complete.

Meanwhile, ‘hard-core’ deflationists could be right too. A big credit expansion typically gives way to a big credit contraction. The past is not prologue, it is an account payable. Now it’s due. But there’s room for negotiation. If the ‘hard-core deflationists’ are right, credit will contract back to ’70s levels and asset prices will correct as much. But a lot has happened since the Carter era. There’s much more demand, for example, coming from all over the world. China is now a bigger energy consumer than the US, and a bigger auto buyer too. Demand for just about everything is growing. This new demand is bound to boost prices.

The supply side, too, puts a brake on deflation. The easy, cheap oil has already been pumped. Other resources – including food and water – require huge new capital investments before supplies will increase. Domestic inflation rates in China and India are already increasing. It’s just a matter of time before the exporters put inflation in a shipping container and send it west.

But we don’t need to rely purely on guesswork. We have an example right in front of us – Japan. The island has been de-leveraging its private sector since 1990 – complete with ultra-low bond yields. Consumer prices fell. Between real estate and stocks, investors lost an amount equal to three years’ total output.

Economists misunderstood it completely and gave consistently bad advice. And the authorities took the advice and squandered a whole generation’s savings. But the world did not come to an end. Japan de-leveraged while the rest of the world went on a buying spree. Now, the entire developed world de-leverages, while the emerging world continues to shop.

Nobody knows anything. But readers should expect a long, soft correction just the same.

Regards,

Bill Bonner
for The Daily Reckoning

Three Out of Four Economists are Wrong originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

And this morning, stock markets in Asia dropped. Earnings are up, just as they are in America. But earnings have a “last waltz” sound to them. AP reports:

New figures from Japan offered a sobering reminder that the world’s No. 2 economy remains fragile: The jobless rate rose, deflation deepened, and factories made fewer cars and mobile phones.

There’s news from the housing market. This update from Bloomberg:

About 18.9 million homes in the US stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade.

The number of vacant properties, including foreclosures, residences for sale and vacation homes, rose from 18.6 million in the year-earlier quarter, the US Census Bureau said in a report today. The ownership rate, meaning households that own their own residence, was 66.9 percent, the lowest since 1999.

Lenders are accelerating foreclosures as borrowers fall behind in mortgage payments after the worst housing crash since the Great Depression. A record 269,962 US homes were seized in the second quarter, according to RealtyTrac Inc. Foreclosures probably will top 1 million this year, the Irvine, California- based data company said in a July 15 report.

“There are a lot of people losing their homes and either moving in with family or renting places to live,” said Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts. “Foreclosures are still going up.”

Foreclosure filings climbed in three-quarters of US metropolitan areas in the first half as high unemployment left many homeowners unable to pay their mortgages, according to RealtyTrac Inc.

The number of properties receiving a filing more than doubled from a year earlier in Baltimore, Oklahoma City and Albuquerque, New Mexico, the mortgage-data company said today in a report. Notices of default, auction or bank seizure rose more than 50 percent in areas including Salt Lake City; Savannah, Georgia; and Atlantic City, New Jersey.

“Foreclosures are spreading out from areas that had been hardest hit,” Rick Sharga, senior vice president for marketing at Irvine, California-based RealtyTrac, said in a telephone interview. “We’re dealing with underlying economic weakness as opposed to unsustainable home prices and bad loans.”

Okay…so the housing situation isn’t great. But housing is not a leading indicator. It’s a lagging indicator. It’s what happens after people have lost their jobs, for example.

But then, as more and more foreclosures happen, more and more houses are available for purchase – many in desperate circumstances. Prices tend to fall. And then, people who still have jobs and houses find that their net worth isn’t what it used to be.

Already, millions of people are underwater. As housing prices fall, millions more will slip beneath the waves. Some will go down with the ship. But many will take to the life boats – sending back the keys instead. This will add to the number of foreclosures and to the inventory of unsold and vacant houses.

When does it end? It ends when it comes to rest on the bottom.

Where’s that? No one knows. But just as houses tend to be priced at more than they’re really worth in a bubble, they tend to be priced at less than they are really worth in a bust.

You can get a rough idea where the bottom in housing might be by doing a little math. You should be able to buy a house at a price where, financially, the decision to buy or rent is relatively neutral. There’s no particular reason why a person should invest in a house rather than in stock or in other investments. His goal is to maximize his quality of life…and his wealth. So, if he can rent a house for less than he can buy it…he should rent, because that gives him the same quality of life at a lower cost, leaving him more money to put to work increasing his wealth. On the other hand, if he can buy more cheaply, he should buy…for the same reasons.

If houses are going up, he’ll pay more for a house – in anticipation of the capital gains. But if prices are flat or falling – he’ll look only to the stream of income he can get from the house (or the enjoyment he’ll get from it personally)…and put on an additional discount to protect himself from capital losses.

Three years ago, it cost much more to buy a place than it did to rent it. A house you might have rented for $1,500 a month might have sold for $300,000. There’s no way that was a good investment. A 6% mortgage alone would be $1,500 a month in interest. Once you’d paid upkeep and property taxes, you’d be in the hole.

Now, that house is down a bit…say, to $200,000 or $250,000. But it’s still a long way from the point where it makes sense to buy rather than rent. Figure you need about 10% per year to pay taxes and maintenance. Plus another 7% for the cost of money. So a house purchase makes sense when you can rent for 17% of the purchase price. Or, to look at it from the other direction, if a house will rent for $1,500 per month, you can pay $108,000 for it.

Now, assume that the price overshoots on the downside. You might expect to pick up the house at a price under $100,000…say $79,000 or $89,000. Most areas are far from yielding bargains like that.

Bill Bonner
for The Daily Reckoning

Housing Market Sinks Beneath the Waves originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

The best I can figure out is that traders were looking ahead of today’s print of second quarter GDP and got the willies… European stocks are declining this morning on those willies, and that has led to some selling of the euro, which as long time readers know, will lead to selling in the other currencies, for the euro is the Big Dog/offset currency to the dollar.

Speaking of the euro, I went through my thoughts about the euro’s price range prospects in yesterday’s Pfennig, so I thought I would share with you two news stories that caught my eye this morning, which show the kind of wishy-washy, no clear direction, the markets have for the euro and the currencies right now…

1. “Dollar May Rise Versus Euro as US Data Unlikely to Worsen, Barclays says…”

And…

2. “Euro to Rise to 1.46, Highest This Year, on Trendline: Technical Analysis…”

See, it’s not easy being me! I have to go through these stories and make heads or tails of them… For instance in the second story, it’s a bit misleading, because in the story you find out that there are qualifiers, like, the euro has to trade above 1.3120 to send it to the next level of 1.36, and so on…

But that first story? Holy Cow! What are those guys smoking? Apparently they didn’t see the data that printed the other day from the Richmond Fed… According to the guy that I believe should be running our Treasury or Fed, Ambrose Evans-Pritchard, of the UK Telegraph… The report was “ghastly”!

I’ve said this before, but Mr. Evans-Pritchard knows more about what’s going on in this country than our own economists!

You know… The other day, I was telling the boys and girls on the trading desk here in St. Louis, MO – home of the 10-time World Champion St. Louis Cardinals – that they should not be getting all lathered up with the fact that the “earnings season” has produced quite a few winners… I quoted them some research I had done, and then lo-and-behold, there it was in the story by Mr. Pritchard… Here’s the skinny of what I told the boys and girls the other day… Again this is from the report on the UK Telegraph…

I told them that just because the earnings were beating the forecasts, we should be somewhat concerned… And here’s why: “While 68% of companies have beaten sales estimates, this is hardly anything to get overly excited about. Back in 2Q08, 69% of companies had beaten sales estimates. We all know where the economy headed shortly thereafter.”

Interesting, eh? So… Second quarter GDP today? Like I said yesterday, I suspect the report will print between 2 and 2.5%… If the report prints greater than 2.5%, then you should be suspicious… Very suspicious!

So… If the euro has sold off by 1-cent this morning, you can be sure that the “other” currencies from countries like: Norway, Australia, New Zealand, Canada, etc. have sold off too…

And in keeping with the very strange trading mentality of flocking to dollars, yen and Swiss francs when it looks like the sky is falling, yen (JPY), and Swiss francs (CHF) are cooking with gas this morning. And… Of course, US Treasuries are also on the hit parade of investors this morning…

Speaking of very strange trading mentalities, the Japanese yen is trading at its highest level versus the dollar this year, this morning. Go figure! While I’m a believer of the “Asian growth story,” it doesn’t necessarily mean that Japan – with its title of “World’s largest debtor nation” – should be trading with an 86 handle!

There’s another rumor going around the world that China will print a sub-50 Manufacturing Index this weekend (Sunday). Recall that manufacturing indexes have a line in the sand drawn at 50… Any number below 50 represents contraction, and any number above 50 represents expansion… A sub-50 print for Chinese manufacturing would be a bad thing for the global growth, folks… And it would be somewhat of a hit to my call that China’s economy is NOT going to collapse as others said it would… I say “somewhat of a hit” because, as I’ve said before, there’s a HUGE difference between “collapsing” and “moderating,” which is what I believe the Chinese economy is doing.

And in the UK this morning consumer confidence took a hit, falling to its lowest reading in a year… You would have to figure that this was going to happen, given the austerity measures/budget cuts that the UK has adopted…

Now… Let’s get back to what’s going on here in the US with homes… I’ve already told you this week about the rot on the vine with homeowners… Well, some additional new data has come out from RealtyTrac and it’s quite ugly… But, another reason why the US will experience a double dip, folks… Here are a couple of the snippets of the report… But first you must put away all sharp objects, and be close to a wall you can yell at…

The latest figures show that the threat of foreclosures is spreading well beyond the top tier of metropolitan areas located in California, Florida, Nevada and Arizona, which have borne the brunt of the fallout from the housing crisis.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to 1 in 78 US homes.

More than 1 million American households are likely to lose their homes to foreclosure this year.

Then there was this… I had my eye on the Bloomie TV yesterday for a minute and saw a blurb come across the screen that said, “Bullard calls for more QE” (quantitative easing) Well… You know me; I just had to see what the St. Louis Cartel President really said… And yes, that’s what he said… Here you go!

“The US is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released today about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

To recap… The currencies have given back their gains from yesterday, as the focus shifts to the US second quarter GDP, which will print this morning. Most observers believe it will be much weaker than the first quarter, and I agree. And that thought gives the markets the willies, for today, at least! The rest of the currencies have followed the euro’s lead to weaker levels versus the dollar, except the usual suspects that rally in times like this: dollars, yen, and Swiss francs…

NOW… I have one last important announcement from my sponsor…

Tuesday, EverBank and the Jacksonville Jaguars entered into a new strategic partnership, which included the renaming of their stadium to EverBank Field. This is a big move for EverBank. As noted by EverBank Chairman and CEO Rob Clements, “It allows us to build significant brand awareness and business relationships through the Jaguars’ and the NFL’s national fan base.”

WOW!

Chuck Butler
for The Daily Reckoning

US GDP Spooks Currencies originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

“…the European stress test was a total waste, I mean, I know you have to talk about something on CNBC and in the press, but that was a total waste… that was just PR and little else.”

Already on a tear, he took his criticism a step further… because the EU isn’t the only propaganda machine in town. He then called out the interviewing TV network for its own special role in the market:

“I said it was PR… they got the stocks up, that’s the whole purpose of PR, make the stocks go higher. That’s what CNBC and many, many PR agencies are all about.”

You can see the video below, which came to our attention from The Daily Bail in its post on Jim Rogers calling CNBC a public relations agency for stocks.

Jim Rogers: Stress Test, CNBC “Got the Stocks Up… That’s What [They] are all About” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Drip after drip of deflation data… Today’s release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at an accelerating pace – before the happy handover to the private sector is safely consummated – and given that the structural East-West imbalances that lay behind the global crisis are getting worse again… This follows yesterday’s horrendous fall in the Texas business activity index from the Dallas Fed, which fell from -4 in June to -21 in July. “Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June,” said the bank. Texas New Orders were -9.6 in July, -8.2 in June, and +15.8 in May. Capacity Utilization was -0.6 in July, +2.7 in June, and +18.7 in May. This of course is why Fed chair Ben Bernanke has been giving strong hints of QE2 (helicopters again) if necessary.

Here is where it gets so interesting we can barely sit still. Ben Bernanke is threatening to drop money from helicopters (quantitative easing). In a better world, a banker who threatened to inflate the currency would be punished immediately. People would take him at his word. They would dump his paper money immediately. The price of it would drop. He’d be forced to protect it.

But this time it really is different. As Ben Bernanke himself put it, even the “credible threat” of monetary inflation by the central bank should be enough to cause people to want to spend paper money rather than save it. Thus, Bernanke promised, he can always speed up the velocity of money and thereby bring about a boom, of sorts, simply by threatening to drop money from helicopters.

But lately he threatens. And still the dollar holds firm. Why? Because the threat is not credible.

Oh what a wicked twist of fate. What has this world come to when a central banker cannot roll the currency markets and whack speculators?

Usually, central bankers are careful to give the impression that they will protect their currencies. Even while they are actually undermining them with monetary inflation. Investors catch on after they’ve been shellacked a couple times. Then, the central banker loses credibility and the currency falls.

But this time, Ben Bernanke actually wants investors to believe he WILL undermine the dollar. He wants to stimulate spending and investing by encouraging people to get rid of greenbacks rather than save them. But people don’t believe him.

Inflation is only really a threat, we conclude, when central bankers are pretending to prevent it…not when they’re trying to cause it.

But why won’t Ben Bernanke drop money from helicopters? Because he’s got a rope around his neck…and it’s getting tighter. As long the US can finance its deficits at low interest rates, he can’t move. It’s uncomfortable, but it’s a damned sight better than hanging. More on this as we figure it out.

Regards,

Bill Bonner
for The Daily Reckoning

How the Threat of Monetary Inflation Keeps a Currency Strong originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Rising prices is Bad News Enough (BNE) when you have a job and your biggest fear is asking for a raise and the boss says “no” which means that you will have to tell your wife, who will think that you are a big, stupid loser, just like her father and mother and all her friends thought, but it is Doubly Bad News (DBN) when you have no income with which to pay the higher prices, and there are no jobs with which to earn some income with which to pay the higher prices, either!

I wish I could help them, and especially help family members, to get good jobs, if only to stave off their pathetic begging for food and wanting to live in my car, but I am too pessimistic to even hope for that, mostly because I know that the root of their unemployment is the result of them being replaced by software or industrial technology, or soon will be, because there is someone out there, right now, working on a computer program and/or a machine that will replace you, too.

And if you don’t believe me, tell me what it is that you do that cannot be done by a computer program or a robot? Hahaha! I thought so! Me, too!

In fact, I am sure that the only reason that most of us, especially me, have not yet been replaced is that nobody has gotten around to economically assembling the necessary machinery, or train a monkey, to do our jobs.

Perhaps that dismal jobs outlook – necessary as jobs are for consumption, necessary as consumption is to production, necessary as consumption and production are to the economy – is part of the reason why I spent most of the last week in Mogambo Emergency Mode (MEM).

But mostly, things are getting to be Too, Too Weird (TTW) for me to handle.

Most of the time, I am sitting alone in my Secondary Mogambo Bunker (SMB) in the closet under the stairs, wedged in between a stupid stepladder and a vacuum cleaner poking me in the ribs, thus darkening my already gloomy mood.

And now everyone, including the third of the population that still has not been replaced by robots and can still support the other two-thirds of the population, is in Big, Big Trouble (BBT), just like the Austrian school of economics has been perfectly predicting and which, as it turns out, is now happening.

That alone should send you screaming (“Gaaaahhhh!”) to the exits to buy more gold, silver and oil, but if you are one of those people who wants to know all the little nit-picky details, like the reason for my latest attack of “we’re freaking doomed!” paranoia and panicky fear, it is a speech by Jean-Claude Trichet, the president of the European Central Bank, titled “Stimulate No More – It Is Time For All To Tighten.”

My initial response was to ask, incredulously, “Is this guy serious?” since I have long regarded him as a hopeless leftist/socialist/commie/moron who would end up doing exactly as he did, and ruin everything just like he has, because he thinks that government is supposed to spend its time finding more and more ways to help more and more people by giving them more and more money and more and more benefits.

My second response, thinking that he may actually be serious, is, “Gaaaahhh! We’re Freaking Doomed (WFD)!”

And the reason that We’re Freaking Doomed (WFD) is simplicity itself: once you start down the road of a highly-leveraged fractional-reserve banking system that creates fiat money from debt, you can’t easily stop, mostly because if you try to stop, then you will Die A Horrible Death (DAHD), which is why it is not popular.

And the horrible death will be from deflation, which is when money literally disappears the instant that the underlying debt, which created the money in the first place, is defaulted upon. The debt goes away and the money goes away! It’s just that simple!

This means, in practical terms, that there is less money to support the prices of the remaining pool of assets, so prices of assets go down

For your edification, the exact point at which “it ain’t easy to stop creating too much money” is easy to pinpoint: it’s soon after you start. Very soon after you start, in fact. Practically simultaneously.

In our case, the point at which it was “easy to stop” creating more money and credit was a Long, Long Time Ago (LLTA), a calculation made obvious beyond the need for precision when you realize it was a Half Freaking Century (HFC) ago! Hahaha!

Therefore, we must abandon all hope of ever, ever, EVER stopping the wholesale “stimulating” of economies with fiscal and monetary insanities, which means that since we will not stop creating more money, we will not stop creating more inflation in prices, which is the Big Freaking Problem (BFP) that everyone is trying to avoid, as preventing inflation in prices is the whole purpose of macroeconomics!

I am sure that you were, like me, enjoying a good laugh at the sheer absurdity of trying to tighten monetary policy in the Eurozone, and you were probably thinking that if the president of the ECB has the time to make stupid wisecracks like this, then things are not as bad as you feared.

Suddenly, you are wondering if you have had a stroke, or have been transported to some weird, stranger-in-a-strange-land alternate universe where the laws of physics and logic no longer exist!

You wonder these things, your brain whirling in a panic, because a sudden excursion into La-La Land would explain why you see Mr. Trichet’s words, “We have to avoid an asymmetry between bold, if justified, loosening and unduly hesitant retrenchment,” but no matter how many times you read it, over and over, you do not understand it! Huh? What?

And the more you mull over the sentence, “We have to avoid an asymmetry between bold, if justified, loosening and unduly hesitant retrenchment,” the more you are enlightened to one more reason why, as if you needed any more reasons why, I am always saying to buy gold, silver and oil, and why I say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

No Stopping the Money Creation Machine originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."