Lights, Camera... Empire

The Daily Reckoning: Weekend Edition
April 8-9, 2006
Baltimore, Maryland
By Kate "Short Fuse" Incontrera

VIEWS FROM THE FUSE: LIGHTS, CAMERA…EMPIRE

Isn’t it funny how things work out? A couple of months ago, we were tossing around the idea of making a documentary based on Addison and Bill’s latest missive, Empire of Debt. We put the proposal in an issue of the DR one day and asked our readers to let us know what they thought.

Well, the response was overwhelming. Of course, we had the few obligatory ‘What are you thinking?’ notes, but the vast majority of DR readers were very excited and supportive about the idea of a documentary.

One reader went above and beyond – talking to people in the ‘biz’, putting out feelers, trying to put together a team that would be a good fit for us. He actually set up a couple meetings in Los Angeles, so off your editor went, having no idea what we were getting ourselves into – but that’s how we prefer to do things around here.

Not surprisingly, there was a question that came up in both meetings: "But – is there a happy ending?" they wanted to know. "What action do you want people to take after seeing this film?"

We admit that these are valid questions – questions that crop up on a daily basis from our readers. We told the people we were meeting in L.A. the same thing we tell our readers:

Well, we’re not really trying to sell our audience a ‘happy ending’ – after all, we’re not convinced there will be one. But we do think it’s important to educate the average American on what is really going on with their country…and the effect that the real estate bubble, the falling dollar and soaring federal debt (just to name a few) will have on their individual financial situation.

The tone of the documentary should be keeping with the tone that we take in each issue of The Daily Reckoning: that, yeah, all of this stuff is bad news, but it’s funny, too…look at the mess we’ve gotten ourselves into. That element of sardonic humor makes the information we’re giving our audience easier to swallow.

Most Americans look at all of those factors that can make or break our economy and think to themselves, ‘Well, it looks like the trade deficit is a bit out of control, but Bernanke is telling us that deficits don’t matter, so I’ll take his word for it.’ If this documentary, or an issue of the DR makes someone who normally wouldn’t take an interest in, say, the monthly jobs numbers, but after reading, they dig a little deeper into the issue at hand, then we’ve done our job.

It’s so important for people to understand how their nation works, to realize that they can’t just take everything they hear on the news or read in the paper at face value. Here at The Daily Reckoning, we’re not trying to make our readers think the sky is falling, but we would like to provide a wake-up call. Perhaps we can help a few people realize the need to look after their own finances, because the government sure isn’t going to.

"So…what kind of investment advice do you offer your audience? If they shouldn’t be putting their money in real estate, where should they put it?" they wanted to know.

"We tell our readers to turn to the essentials," we told them. "Focus on things that you know and can control. Follow the rules, pay attention to history, to the distilled wisdom of generations of dead people."

"Oh, yes…and buy gold."

Short Fuse
The Daily Reckoning

P.S. ‘Buy gold’…we know you’ve heard that more than once in reading the DR, so we’ll add something to it: look at the whole natural resource and commodities sector for investments. Precious metals, sugar, corn – they’ve all been having a great year. Resource Trader Alert’s Kevin Kerr has given multiple interviews this week on the benefits of being involved with the commodities market.

— Daily Reckoning Book Of The Week —

Empire of Debt: The Rise of an Epic Financial Crisis – Now a NY Times Best Seller!
by Bill Bonner and Addison Wiggin

"Watching the news is a bit like watching a bad opera," say best-selling authors Bill Bonner and Addison Wiggin. "You can tell from all the shrieking that something very important is supposed to be happening, but you don’t quite know what it is. What you’re missing is the plot."

After a generation of being spoon-fed reality by media, it’s understandable that Americans are confused about the state of their nation. In their newly released book, Empire of Debt, Bonner and Wiggin wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions.

Americans are rapidly facing a choice: recognize these dangerous delusions and take steps to avoid their collapse. Or remain ignorant of them and risk losing all of their wealth when the house of cards comes crashing down.

Daily Reckoning readers can purchase their copy of the book that The Economist called one of the top ten books that will "tell you what’s really going on" – at a discount – by clicking here:

"The Most Feared Book in Washington!"

THIS WEEK in THE DAILY RECKONING: The focus this week, as it was in the markets, was on commodities. Feel like the commodities market is too "risky" to get into? Reading "Tangible Wealth," below, should help ease those fears…

Erin Risen     04/07/06
by Bill Bonner

"Although the River Liffey runs through Dublin like it always has, something has shifted in Ireland – for the better. What brought about this dramatic change? Bill Bonner explores…"

Tangible Wealth     04/06/06
by Puru Saxena

"When demand is on the rise, it takes years to increase the supply. Unlike financial assets, the supply of commodities cannot be increased at will."

Economic Evolution     04/05/06
by Justice Litle

"The more abstract our transactions get, the more we rely on electrons, the more we will want something solid at the end of the chain to bring about peace of mind."

The Third Industrial Revolution     04/04/06
by Hans Sennholz

"A third Industrial Revolution is now making its appearance in the United States and other industrial countries. And just like the first two, it is bound to introduce many changes."

The Mogambo Takes On Alex Trebek     04/03/06
by The Mogambo Guru

"I’ll take the Federal Reserve and Idiotic Monetary Policies for $500, Alex."

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HEADLINE, NEWS And INSIGHT: What’s the deal with the inverted yield-curve? We’ve always learned that an inverted yield-curve signals an upcoming recession, but Bernanke has been telling the country otherwise. Read about it in "Bernanke’s Yield-Curve Confusions"…

Bernanke’s Yield-Curve Confusions
by Frank Shostak

"Ben Bernanke admitted that he is not so sure whether the Fed should be tightening its stance further or whether the central bank should pause. The reason, according to Bernanke, is the unusual behavior of long-term interest rates."

Bad News for the Dollar…Good News for Gold
by Paul van Eeden

"The problem, of course, is the ballooning U.S. trade deficit with China. In order to let the renminbi appreciate against the dollar, China will have to sell more of the trade dollars it receives and buy fewer U.S. Treasuries."

Combustion
by Dan Denning

"Electricity does not generate itself. For large economies, that means use of hydrocarbons, or, in some distant Hollywood/DARPA future, an economy based on uranium."

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FLOTSAM AND JETSAM: Gold is usually bought as a hedge against inflation, and with the price of the yellow metal touching $600 this week; we can’t help but wonder what exactly the Fed has up their sleeve. Justice Litle looks at two possible scenarios…

What, Me Worry?
by Justice Litle

As you are likely aware, gold is now pushing 25-year highs and challenging the $600 ceiling. Crude oil is once again threatening the $70 barrier. Central bankers in America, Europe and Japan have all entered a tightening phase. Mortgage resets loom over the American consumer’s head like the sword of Damocles.

And yet the markets are partying like there’s no tomorrow.

Emerging markets broke out with a vengeance earlier this week. Some of the strongest movers of the past few months, apart from energy and metals, have been in areas like construction, iron & steel, railroads, and raw materials. This is not a market acting like we are headed into a global tightening phase, with consumers tapping out, real estate rolling over, and central banks laying the hammer down.
This is a market acting like we are at the BEGINNING of a massively stimulated, speculative driven, sea-of-liquidity boom, rather than the end of one. What gives? I had a quick email conversation with my colleague Chris Mayer earlier today on the topic of market craziness. Here is the gist of my thoughts:

For a while it’s seemed the Fed has two routes to the inevitable inflationary denouement:

1) Tighten too much, trigger a deflationary spiral by accident, and then do a panic injection of mass stimulus.

2) Talk tough in public, monetize like hell in private, and pretend not to notice the effects.

The second route is more favorable to the powers-that-be, not to mention all the big Wall Street players. This includes the Ivy League alma maters with multi-billion-dollar portfolios. (Central bankers have loyalties too, you know.) Properly channeled inflation helps the big boys more than it hurts them, because they know how to milk huge profits from it. For the average Joe in middle America, whose personal base of assets is miniscule compared to his rising cost of living, this whole arrangement is little more than a hidden asset transfer.

I wonder if the Street is doubling down on scenario number 2 now. If so, the whirlwind monetization will continue in private, even as the Fed talks tough in public. But then, it’s not even clear whether the fed can be bothered to talk tough consistently. Though Bernanke showed his talons at the recent meeting, going so far as to suggest a watchful eye on commodities, there were surprisingly dovish sounds coming from lesser Fed heads yesterday.

"Things are just fine," they tell us. "Inflation is contained."

As far as gold goes: "What, me worry?"

Editor’s Note: Justice Litle is an editor of Outstanding Investments, ranked number one by Hulbert’s Financial Digest for total return performance over the past five years. He has worked with soybean farmers, cattle ranchers, energy consultants, currency hedgers, scrap metal dealers and everything in between, including multiple hedge funds. Mr. Litle also acted as head trader for a private equity partnership, and made contributions to Trend Following: How Great Traders Make Millions in Up or Down Markets, a popular trading book by Mike Covel (FT/Prentice Hall).