We’ll get back to that in a second. First, our regular beat…

Markets went precisely nowhere yesterday. It was as if everyone agreed to stay home…or go fishing…or to become reacquainted with that strange person living in their house and sleeping in their bed. Among other things, investors are waiting to see what happens with Greece. We’ll save them some time. Nothing will happen. Nothing different, anyway. Here’s Bloomberg, with more news on the same old story:

Greek political leaders struck a deal on a package of austerity measures, clearing the way for a swap to cut the nation’s debt and win its second rescue in two years.

Greek Prime Minister Lucas Papademos called European Central Bank President Mario Draghi to tell him “an agreement has been reached,” Draghi said at a press conference today in Frankfurt. An announcement from Papademos’s office is expected shortly, a Greek government official who declined to be identified said today by telephone.

The accord came less than four hours before euro-region finance ministers hold an emergency meeting in Brussels to discuss the 130 billion-euro ($172 billion) lifeline and the swap that will impose a loss of about 70 percent for investors.

Oh, Papademos and Draghi said all’s well. An agreement has been reached. A deal was struck. Phew! We thought that…

…Wait, we’re trusting politicians now? Ex-Goldman Sachs politicians (in Draghi’s case), no less? When did that happen? These are people who couldn’t lie straight in bed. Everybody knows it. Notice, for instance, how these and various other furry-knuckled folk are no longer referred to as “politicians”? That word has been sullied. People have trouble even using it without nailing a “damned” or “thievin’” to the front of it. Now the papers, with embarrassing deference, refer to them as “political leaders.”

Let’s recap what we know about Greece and the euro-situation in general. For brevity’s sake, we’ll stick to its most recent — i.e. current — collapse only.

Back in May of 2010, five short months after receiving its first official credit downgrade, Greece was awarded a €110 billion 3-year “loan.” (We put that word in inverted commas just in case it mistakenly implies repayment.) And what happened? Did the government clean its act up? Did it cut expenses, as promised? Did the economy roar back to life? Of course not. Protesters had barely left their post in Syntagma square when it was time to return for more banner waving and foot stomping. By December that year, the yield on 10-year bonds had spiked to near then record highs over 11%.

Not to worry, said the Feds, who swept in with another €110 billion bailout plan…again negotiated under the strict condition that they rein in spending. But the horse had already bolted. Greece’s outstanding debt is now equal to roughly 160% of GDP. The gears have stalled. Official unemployment has reached over 20%. It’s worse for the youth. Much worse. Half of the nation’s under-24 population is without work. Growth has collapsed. Industrial output in December fell 11.3% from the year-earlier month.

Would you lend these people money? Would you lend these people your money? Only a fool would answer yes to the second question. Only a politician would answer yes to the first.

The Spartans are broke. They have been for a long time. And, as such, they will default. One way or another. All the handshaking, backslapping, hallway dealing, last minute brokering, politicking and brinkmanshipping won’t stop that. It’s just noise, playing like the soundtrack to a movie that’s already been written.

Not that the Greeks area lone sinners. The whole developed world is caught up in a debt funk. The collapse, when it arrives, is going to be truly epic. Which brings us back to our original thought: If you had the choice, would you live your life at any other time?

Take a look back through history. Most of it was a complete bore, save for the workaday melodramas played out in small, social soap operas. In fact, most of history existed before actual soap operas…and before soap…and before operas.

Sure, there were wars and plagues and the miserable collapse of empires. Currencies were debased and their masters beheaded. New lands were found and old cities forgotten. There were events that reshaped the course of history itself, delivering us the present day in which we live.

But mostly these things took many years, centuries even, to fully express themselves. Trends were slow…probably because there was nobody around to drive them. Mankind couldn’t even manage to gather a group of 1 billion people until 1811. How can you expect to get anything done when you’re still counting the global population in “millions?”

These days, contrary to the relative snoozefest of yesteryear, things happen. And when they do, they are fast…and loud…and on a scale that dwarfs any other in history.

Take economic output, for example. According to data compiled by The Economist, more than half (55%) of all the economic output generated over the past 2,000 years was generated in the 20th century. In other words, the last 100 years of the millennium produced more than the preceding 1,900. And this trend — along with the mushrooming population supporting it — is quickening. The first 10 years of this millennium account for roughly one-fifth of the total economic output achieved since BC ticked over to AD.

All this is just a fancy way of saying that big things are happening. Big booms. Big busts. Greece-, Europe-, US- and entire developed-word sized busts. And, lest we fail to mention it, a spectacle like no other in history.

Who would want to miss that?

Joel Bowman
for The Daily Reckoning

Watching the Greek Debt Episode of the Global Soap Opera originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Yes…we’re going to Japan!

The gist of the Japanese situation is this:

The bubble burst in 1990. But rather than let their big businesses go belly up, the Japanese used every trick in the book. Counter-cyclical deficits up the Shinanho. ZIRP (zero interest rate policy). And QE too.

The economy didn’t grow. It didn’t collapse. It just got stuck…like a moth in amber. No new jobs. No new output. And get this, Japan is expected to lose 40% of its working age population by 2050.

But Japan is a leader, not a follower. Over the next 40 years, Germany will lose more than 30% of its working age population too. Russia and Poland will lose even more.

Growth is expected to be negligible over the next 40 years in Japan. But it will be almost nothing in many other countries too, according to an HSBC report. It estimates that the US will grow at around 1.5% annually. France 1.1%. Denmark, Norway, Sweden — barely anything at all.

What does this sound like to you, dear reader? It sounds like the whole developed world going Japan’s way — with low growth and high debts from here to eternity.

As in Japan, so in Europe and America. The European Central Bank is lending the banks as much as they want — at low rates. The Fed has its own ZIRP…which it says it will keep in place until 2014.

Growth is stalled…debts are mounting up. Hello Tokyo!

But wait…here’s the Congressional Budget Office telling us that Congress will have those deficits under control in no time.

“Deficits to fall sharply, US forecast says,” reports the International Herald Tribune.

What a relief that is! The CBO has crunched the numbers. It has beaten up the 2s. It has punched out the 5s. It has pounded the 6s. And now, finally, like prisoners at Guantanamo, the numbers tell us what we want to hear.

US debt is going down!

Wait a minute…are these the same number crunchers who, at the beginning of the 21st century, forecast federal surpluses as far as the eye could see?

Yes, it is!

But, okay, that didn’t work out exactly as planned. They crunched the numbers but then the numbers got un-crunched on their own. Damned numbers! You just can’t trust them.

So, how can we trust these numbers?

That’s just it, dear reader, we can’t. In order to work out as planned, they require:

1. Congress has to let the Bush tax cuts expire on schedule. Hmmm… Will that happen? Beats us. It probably depends on who wins the elections in November…which probably depends on what the economy does between now and then…which probably depends on more things than we can begin to estimate and compute.

But the central idea of it — that Congress will act responsibly — seems like something you can’t say with a straight face. Will pandas stop eating bamboo? Will teenagers stop slouching? Will liquor stores make free home deliveries? Nope. Everything has a nature of its own. And the nature of Congress is to spend money it doesn’t have on things it doesn’t need. And then to push the bill onto the next Congress…the next administration and the next generation.

2. Not only do taxes have to go up, so does economic growth. There’s a problem right there. According to prevailing theories, if you increase taxes during a de-leveraging spell, you don’t get faster rates of GDP growth. You get slower growth.

The CBO acknowledges this problem, to a degree. It allows as how unemployment may go up, thanks to the tax increases. In fact, they say it will go to 9% in 2013.

How will the President, Congress and the Fed react to rising unemployment? Mightn’t it tempt them to engage in a little more counter-cyclical stimulus…at the expense of the tax cuts?

And what happens to growth rates? The CBO figures that growth can outstrip deficits. Maybe. Maybe not. Now, it’s not even close. There’s a $1.1 trillion deficit this year. Growth? Maybe a fifth of that. In other words, debt is growing 5 times faster than the economy.

During Mr. Obama’s first (and maybe last) term, US debt will grow by more than $5 trillion. Another term like that and we’ll be over $20 trillion.

And already the weight of debt is pressing down growth rates…and it’s getting worse.

And if HSBC is right, US growth will be very slow. Will deficits also be very low? Below 1.5% of GDP? Down from over $1 for the last 4 years to under $225 billion for the next 40?

Heck, we’re as soft-headed as anyone. We’d like to see the whole problem go away too. And maybe it will…

But we wouldn’t bet on it…

Bill Bonner
for The Daily Reckoning

Debt Beats the Economy in a Growth Race originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

The ECB meets today to set monetary policy, and ECB President Mario Draghi will hold a press conference following the meeting, so we could see some additional euro volatility throughout the trading day. Draghi will definitely be questioned on the ECB’s possible role in securing a second round of funding for Greece. The ECB reluctantly entered the debt markets, purchasing bonds in order to keep rates from rising too dramatically. They have accumulated a substantial position in Greek debt, and the IMF wants them to agree to take a write-down on this debt in order to reduce Greek debt levels. The bonds purchased by the ECB were already at a discount, but Greece wants them to take an even larger discount on these holdings. The bonds bought by the ECB in its Securities Market Program are exempt from the current debt-swap deal, but Greece needs additional debt reductions, and the IMF is pressuring the ECB to write down this debt.

It will be interesting to see what Draghi decides to do, as many of his cohorts in the ECB aren’t interested in booking big losses on this debt. And if the ECB is forced to participate in the Greek debt write-downs, what will that mean for the other distressed debt that the ECB has purchased? It would certainly seem to set a precedent that the ECB would have to follow in dealing with other debt purchased through their QE efforts of the past year.

The data released this morning in Europe will give the ECB a bit of good news to start their meeting. Economic confidence in the euro area rose in the first quarter after posting losses in the previous two. The positive move was led by an improvement of expectations for the euro region over the next six months, according to the Ifo research institute, with the indicator measuring future expectations rising from 57.4 to 70.5. This is still under its long-term average, but a good move in the right direction. ECB President Draghi has said 2012 will be a “much better” year and, these data indicate many of the business leaders seem to agree.

The Bank of England will be meeting also, and many expect BOE Gov. Mervyn King to announce additional stimulus measures. Economists predict King will announce an increase of 50 billion pounds to their target for bond purchases, and some expect an even larger 75 billion pound increase. Growth in the U.K. has resumed (albeit very slowly) following a contraction in the last quarter of 2011. But King has indicated he would like to see stronger numbers, and doesn’t seem to be worried about any inflationary impact of pumping additional funds into the U.K. economy. The risk of slipping back into a second recession seems to far outweigh any future negative impacts of additional stimulus measures in the mind of the current BOE leader. With rates near zero, additional bond purchases is the preferred policy tool of the BOE, and an increase is being priced in by the markets.

At least one Federal Reserve president here in the U.S. would also like to see additional bond purchases. John Williams, the Fed president of San Francisco, said he thinks there is room for additional purchases of mortgage-backed securities by the Fed. “There’s only so much headroom to do further Treasury securities of a medium- or long-term duration. But there is more room out there in the mortgage-backed securities space,” Williams told reporters in California. Fed chairman Ben Bernanke said yesterday that he sees a “long way to go” before the job market returns to normal, and additional bond buying is one option that is still on the table. It makes me a bit nervous to be following in the footsteps of the BOE and BOJ in what seems like another round of QE.

No data releases in the U.S. yesterday, but today is Thursday, which means we will get the weekly jobs numbers. Initial jobless claims are expected to have increased to 370,000 from 367,000 last week, and continuing claims are expected to have risen to 3.5 million. This data may seem counter to last week’s unexpected drop in the jobless rate to a three-year low, but the reason for this drop in the big number is that workers are simply giving up looking for work. So while last week’s announcement of a drop in the unemployment rate to 8.3% sent stocks soaring, the rate doesn’t give the true picture of the U.S. labor market. Chairman Bernanke pointed this out in his speech to the Senate Budget Committee yesterday, saying the job market remains a “long way” from returning to normal.

China’s inflation unexpectedly moved higher in January, according to reports released yesterday. Consumer prices rose 4.5% from a year earlier, a number that was higher than every economist’s predictions. The rise in prices was partially due to a weeklong holiday in January, which increased the number of shopping days available for consumers to make purchases. The higher inflation rate reduces the possibility of further policy easing in the near term, but most economists are expecting inflation to cool in the coming months.

The hike in consumer prices in China is yet another indication that the Chinese economy is not headed for a meltdown. This is good news for the commodity-based currencies of the New Zealand (NZD) and Australian dollars (AUD), and both hit near-term highs yesterday. The Kiwi traded back above 84 cents for the first time since September of last year. A report released in New Zealand showed employment grew last month, albeit at a slower rate than expected. New Zealand employment rose 0.1% in January versus a median forecast growth of 0.4%.

The Aussie dollar’s recent moonshot stalled a bit yesterday, as the Greek negotiations stumbled. The AUD$ has been on a two-month move higher, vaulting from below 97 cents at the end of November to a high of 1.0845 yesterday. The Reserve Bank’s move to keep interest rates unchanged, and their positive outlook on global growth prospects, has given investors confidence in the Australian dollar.

The guys who read the technical charts say the Aussie dollar looks overvalued at the current levels and suggest waiting to see a pull back to $1.05 before making any additional purchases. Another story I read on Bloomberg suggests the Aussie’s recent rally will force the Reserve Bank to resume cutting interest rates as higher Aussie dollar prices will negatively impact Australian exports. I guess it is just additional proof that you can spin things any way you want. I still feel the commodity currencies are the place to invest.

Then there was this… On my drive to work this morning, I heard a newscaster saying how it was nice to see Congress finally coming together to pass an important piece of legislation. I wondered could it be real deficit reduction? Tax reform? Tort reform? No, it was the bill that would ban members of Congress from profiting from using inside information in trading stocks. Shouldn’t this be illegal already? In fact, it is, as members of Congress are not exempt from existing insider trading laws, but the Constitution’s protection of their “speech or debate” makes it extremely hard to investigate violations. A 60 Minutes report back in November showed some members of Congress, including House Speaker John Boehner and Minority Leader Nancy Pelosi, had bought stock in companies while legislation that might affect those businesses was being debated. I guess it is good news that they are finally doing something about the loophole, but wouldn’t their ethics already prevent this? Oh, I forgot, I am talking about Congress.

To recap. The Greek leaders have been given 15 days to find additional cuts to offset pension costs. The ECB and BOE meet and both may be adding to their bond buying. The ECB has to decide if they want to take a haircut on their Greek debt. Chinese inflation pushed higher, causing a rally to the commodity currencies. And our Congress is set to pass a law which really shouldn’t be necessary.

Mike just pointed out a headline that the Greek parliament has come to an agreement on additional cuts which should seal the deal on a second round of funding. This should send the euro and the risk currencies higher today!

Chris Gaffney
for The Daily Reckoning

The Greeks are Given Another 15 Days to Find More Cuts originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

I just met this remarkable fellow, full of wisdom on investing, yet hardly known beyond a small group of fans. His name is Thomas Phelps, and he’s had quite a career. He was The Wall Street Journal’s Washington bureau chief, a former editor of Barron’s, a partner at a brokerage firm, the head of the research department at a Fortune 500 company and, finally, a partner at Scudder, Stevens & Clark (since bought out by Deutsche Bank). Phelps retired in Nantucket after a varied 42-year career in markets.

Along the way, Phelps figured out a few things about investing. He conducted a fascinating study on stocks that had returned $100 for every $1 invested. Yes, 100-to-1. Phelps found hundreds of such stocks, bunches available in any single year, that you could have bought and enjoyed a 100-to-1 return on — if you had just held on.

This was the main thrust of our conversation: The key is not only finding them, but keeping them. His basic conclusion can be summed up in the phrase “Buy right and hold on.”

“Let’s face it,” he said, “a great deal of investing is on par with the instinct that makes a fish bite on an edible spinner because it is moving.” Investors, too, bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes them to make a lot of trades… and never enjoy truly mammoth returns.

Investors crave activity. Wall Street is built on it. The media feed it all, making it seem as if important things happen every day. Hundreds of millions of shares change hands every session.

But investors need to distinguish between activity and results. “When I was a boy, a carpenter working for my father made this sage observation: ‘A lot of shavings don’t make a good workman.’” As you can see, Phelps is a man of folksy wisdom.

“Investors,” Phelps continued, “have been so thoroughly sold on the nonsensical idea of measuring performance quarter by quarter — or even year by year — that many of them would hit the ceiling if an investment adviser or portfolio manager failed to get rid of a stock that acted badly for more than a year or two.”

What investors should do is focus on the business, not on market prices. Phelps showed me financial histories of a long list of companies — earnings per share, returns on equity and the like. No stock prices. After one example, he asked: “Would a businessman seeing only those figures have been jumping in and out of the stock? I doubt it.” But if they just sat on it, they’d be rich.

And this is the nub of it. Phelps is not a fan of selling good businesses.

He talked about how his friend Karl Pettit — an industrialist, inventor and investor — sold his shares of IBM stock many years ago to start his brokerage business. He sold them for a million bucks. That stake would eventually go on to be worth $2 billion — more than he ever made in his brokerage business.

Phelps told me the story of how he sold his Polaroid stock to pay a steep doctor’s bill of $7,415 back in 1954. “Here is the confirmation of the sale,” he said, which he keeps as a reminder of his folly. Less than 20 years later, his Polaroid stock was worth $843,000. That’s an expensive doctor’s visit.

Phelps also stands against market timing. He told me about how he predicted various bear markets in his career. “Yet I would have been much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”

Because of his bearishness, he missed opportunities that went on to deliver 100-to-1. “Bear market smoke gets in one’s eyes,” he said, and it blinds us to buying opportunities if we are too intent on market timing.

“He who lives by the sword shall perish by the sword,” he added. “When experienced investors frown on gambling with price fluctuations in the stock market, it is not because they don’t like money, but because both experience and history have convinced them that enduring fortunes are not built that way.”

Phelps showed me a little schematic that reveals how much a stock must compound its value to multiply a hundredfold:

35 years — 14%
30 years — 16.6%
25 years — 20%
20 years — 26%
15 years — 36%

You’ll note that these are very long holding periods, but that’s the point. The greatest fortunes come from gritting your teeth and holding on. You’ll also see it’s a fairly high hurdle. You need growth.

(Several stocks we own are giving us annualized returns above Phelps’ tough 100-fold hurdles so far: IAG (39%), FLS (28%), MEOH (32%), TIE (25%) and GTLS (70%) — to name those we have held for at least one year. Twenty years is a long time, though…)

Phelps advises looking for new methods, new materials and new products — things that improve life, that solve problems and allow us to do things better, faster and cheaper. There is also an admirable ethical streak to Mr. Phelps’ style. He emphasized investing in companies that do something good for mankind. Finally, focus on cheap stocks, though you have to look beyond past figures.

“There is a Wall Street saying that a situation is better than a statistic,” Phelps said. Relying only on published growth trends, profit margins and price-earnings ratios is not as important as understanding how a company could create value in the years ahead.

Phelps is quick to add that he is not advocating blindly holding onto stocks. “My advice to buy right and hold on is intended to counter unproductive activity,” he says, “not to recommend putting them away and forgetting them.”

And so what if you don’t get a hundredfold return? The point of Phelps’ brilliant teaching method is to focus your attention on the power of compounding, to forget the day-to-day burps and ripples of stock prices. You can see the power of such ideas in the stocks we own: If you had bought Canadian Natural Resources (NYSE:CNQ) 10 years ago, for example, and held on no matter what — through recessions, bubbles, credit crises — you’d have multiplied your money 11-fold. Brookfield Asset Management (NYSE:BAM) went up nearly sevenfold. Buy right and hold on, indeed.

It is an investment tragedy of a sort to think that people have owned these stocks and not reaped those gains because they were trying to time the market or trade in and out. Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years, but still delivered the big 100-to-1.

“One of the basic rules of investing is never, if you can help it, take an investment action for a noninvestment reason,” Phelps advises. Don’t sell just because the price moved up or down, or because you need to realize a capital gain to offset a loss, etc. You should sell rarely, and only when it is clear you made an error. One can argue that every sale is a confession of error, and the shorter time you’ve held the stock, the greater the error in buying it — according to Phelps.

I love Mr. Phelps’ ideas. They are hard to implement, I know. But some people have. He related the experiences of individuals, former clients and old associates who got rich by buying right and holding on. Only the most-exceptional individuals can do it. Phelps wishes he had learned these insights when he was younger.

Now, I have a little confession to make about Mr. Phelps… I didn’t actually meet him. He’s been dead since 1992, reaching the ripe old age of 90. Every quote above comes not from a conversation, but from his book, 100 to 1 in the Stock Market: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities, published in 1972.

I recently picked up a near mint copy for $22. This forgotten book should be a classic. Do not let the implausibility of making 100-to-1 on your stocks distract you. The main idea is to know how such returns have happened and what investors needed to do to get them. Aiming a little closer to that goal is bound to improve your results.

Phelps wrote as much. “Just a slight change in a golfer’s grip and stance may improve his game, so a little more emphasis on buying for keeps, a little more determination not to be tempted to sell… may fatten your portfolio. In Alice in Wonderland, one had to run fast in order to stand still. In the stock market, the evidence suggests, one who buys right must stand still in order to run fast.” I think it is superb advice.

I recommend the book, which is a pleasure to read and has plenty of good ideas, analogies and stories. They are particularly relevant now, given all the trouble in the world. I am inspired by his philosophy of buying right and holding on. I think you should try to do more of that, too.

Regards,

Chris Mayer,
for The Daily Reckoning

The Value of a Thief originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Here’s the skinny. The European Central Bank has made key concessions over its holdings of Greek government bonds that will contribute to a reduction of Greece’s debt burden. The ECB has agreed to exchange the Greek government bonds it purchased in the secondary market last year at a price below face value, provided the debt restructuring talks under way find a successful outcome.

The ECB won’t make a loss on the transaction, but it is not clear whether the bank will exchange the bonds at the below-par price at which it purchased them or whether it will make a profit.

I find this to be very interesting, as the ECB previously didn’t want any part of this trade. And once again, I point to the fact that I told you last month that there would some changes to the ECB’s stance and that some semblance of calm would come over the eurozone. Not that they are out of the woods by any stretch of the imagination. It’s just that calm now means that all the negativity gets drowned out, temporarily.

So the euro has stretched all the way to 1.3280 overnight. And the rest of the currencies are following the old Big Dog’s lead.

And gold really took off! The shiny metal gained back all it had lost the previous two days, as the flight to dollars and the so-called “safe haven” was reversed. I would really like to see gold have some real direction, though. It goes up $25 and then goes down $25. But I did look like the Mighty Oz yesterday when I said that that it could be a good move to buy some gold at the cheaper price.

I have a couple of things to go over this morning that just made my blood boil yesterday. If you’re not interested, skip ahead.

First, my blood pressure just began to tick higher and higher when I read “Congressional Earmarks Sometimes Used to Fund Projects Near Lawmakers’ Properties”.

And another.

And then this one regarding the Federal’s Reserve’s explicit goal, to devalue the dollar.

A friend of mine sent this to me and asked what I thought. I said, “It’s nice to see someone other than the Butlers, Rogers, Caseys, Gallands, Bonners and Wiggins telling people that this is happening and what it’s going to do the value and purchasing power of the dollar!”

Yesterday, Big Ben Bernanke told the Senate that Congress should focus for now on economic growth, rather than budget deficits. “Abrupt action to reduce the deficit in the next few months could seriously damage the recovery,” he said

Lawmakers are torn. The have the general public banging on their doors to cut deficit spending and they have the Fed chairman banging to promote growth. It’s like a devil on the lawmakers’ collective right shoulder and an angel on the left. Who will win? I bet you all know which one I would side with if I were a lawmaker, even if I didn’t get re-elected — because it’s the right thing to do.

I would tell Big Ben, “Look, buddy, you’ve cut rates to near zero and held them there for over two years and you tell us they’ll stay there for another two years. You’ve implemented two rounds of quantitative easing. The government has done “cash for clunkers,” tax rebates, stimulus and many other stupid pet tricks to promote growth. But as the two old ladies in the old hamburger commercial said, ‘Where’s the beef?’”

I would continue to tell him that I’ve decided to go another direction. I would find ways to cut the deficit burden and remove the shackles holding back small business.

But I’m not a lawmaker now. I was once an elected official of my little river town, an alderman. But then lost re-election by 1 vote! Then I found out that a lot of friends and acquaintances that would have supported my re-election didn’t vote, because they thought I would win easily. I decided then that lawmaking, even in a little river town, wasn’t my cup of tea.

The Chinese renminbi, (CNY) after seeing weeks of give and take in the value, finally pushed higher versus the dollar last night, to an 18-year high! Of course, the news regarding Greece had a lot to do with this move higher, but add to that that Chinese Vice President Xi Jinping is on his way to visit the US. When the Schumers and Grahams try to box Xi in a corner and badger him about China’s currency policy, Xi can simply point to the fact that the renminbi is at a 18-year high versus the dollar!

I have to mention the move that the Mexican peso (MXN) has been on for the past month. I’m not a fan of pesos, but they sure have gotten some wind in their sails with all the talk about the US economy recovering. That alone should make you want to back away from pesos, because if the US economic recovery is lacking terra firma, as I believe (as does the Fed, or else they would not be keeping rates near zero and laying the groundwork for more QE), the peso rally could be short-lived. But for now, it’s trading like it’s the new Pet Rock!

Another currency that has been very strong for some time now but looks to me to be very overvalued, the Japanese yen (JPY) is seeing some selling this morning on the news that the Ministry of Finance reported that Japan’s current account surplus for calendar year 2011 was the smallest since 1996. It’s still a surplus, but it’s dwindling away.

Yesterday, I told you about the Misery Index and how the US Misery Index had increased in 2011. A very astute reader mentioned to me that since I talk about John Williams and Shadowstats all the time, that instead of using the government numbers for the Misery Index, I would use the Shadowstats numbers. Very good point!

The US Misery Index goes from 11.30% per the government to 29% per Shadowstats. OUCH!

Remember a couple of weeks ago I told you about Byron King and his story about the US becoming energy independent? According to The Wall Street Journal:

“The US has reversed a decades-old trend of increasing dependence on foreign energy and is closer to complete energy self-sufficiency than it has been in nearly 20 years. Data from the Energy Department show that through the first 10 months of 2011, the US met 81% of its energy requirements from domestic sources.”

That’s great news! But then why is the price of oil still around $100? The cost to get the oil or natural gas out of the ground remains very high, and until those costs come down, if ever, the price of gas at the pump will remain high. In fact, I saw a story on HLN yesterday morning saying that gas would reach an average price of $4 a gallon by May.

To recap, the currencies and metals began to rally yesterday midmorning on rumors that the ECB was going to ease their stance on holding Greek debt. When those rumors proved to be true, the currencies and metals rallied even more strongly. Chinese renminbi reached an 18-year high versus the dollar last night, ahead of a visit to the US by the Chinese vice president. And the Japanese current account surplus is at the lowest level since 1996.

Chuck Butler
for The Daily Reckoning

Fed to Devalue Dollar by 33%? originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

But are gold buyers making a big mistake? Is history repeating itself? The New York Times suggests it is:

As it was in 1980, could it be again in 2012?

The 1980 presidential election was fought by a Democratic incumbent weakened by a poor economy amid worries that the United States had lost its ability to compete in the world. Gold prices had risen to unprecedented levels as the election approached, and the Republican nominee hinted he might propose a return to a gold standard.

That Republican, Ronald Reagan, won the election and soon appointed a commission to study the role of gold in monetary systems. To gold bugs, it appeared to be the best chance in decades to move the country toward gold and away from what they like to call “fiat money,” a currency anchored by nothing more than government dictates.

Last month, Newt Gingrich, seeking to widen his support in the days leading up to the South Carolina primary, promised that he would appoint a new gold commission. “Part of our approach ought to be to re-establish something Ronald Reagan did in 1981 and that is to have a commission on gold to look at the whole concept of how do we get back to hard money,” he said in a speech.

No, dear reader, history is not repeating itself. The NYT is wrong…about everything. Well, almost everything. It understands that gold is a threat to its big advertisers…and most of its readers (who don’t own any gold). It is also a threat to most economists — who have built their careers on not understanding how a real economy actually works…and whose income and whose professional status now depend on a gold-free, centrally-planned economy.

So, to prove that gold is a ‘barbarous relic’ and that gold bugs walk on four legs, they merely put the question to economists.

The University of Chicago last month asked a panel of 40 economists, including former advisers to both Democratic and Republican presidents, if they agreed that “price-stability and employment outcomes would be better for the average American” if the dollar’s value were tied to gold. Every one of them disagreed, some with more than a little incredulity that such a question was worthy of discussion.

“Why tie to gold?” asked [the very witty] Richard Thaler, a University of Chicago professor. “Why not 1982 Bordeaux?”

“Eesh,” responded Austan Goolsbee, a Chicago colleague and former adviser to President Obama. “Has it come to this?”

The Times goes on to report that “even economists with some sympathy to gold opposed the idea” of a gold-backed dollar. And Mr. Ben Bernanke, former professor of economics at Princeton, says he doesn’t think gold is money.

Oh yeah, replied Congressman Ron Paul, then why do central banks hold gold…and not things such as ’82 Bordeaux or diamonds?

Mr. Bernanke replied that it was just a matter of “tradition.”

Yes, he’s right…it is a matter of tradition, like marriage…like property rights…like government…like murder…like teenagers who moon adults out of car windows…or like drivers who give each other the finger.

Traditions become traditions because people keep doing them. And they keep doing them for reasons that aren’t likely to go away. Times change. Conditions change. Human nature doesn’t.

But let us go back to the New York Times’ silly notion that we are about to relive the period following ’80. What seems to have triggered the idea was Newt Gingrich’s proposal to study the idea of going back on the gold standard. Every right thinking person in the country — the Times implies — knows the idea is foolish. And the price of the yellow metal is sure to fall, as it did after the Reagan election, when people realize how foolish it is.

But gold didn’t fall after ’80 because the Reagan administration didn’t put it back in the monetary system. It fell because Paul Volcker made it unnecessary. Instead of printing money, Volcker tightened up…taking out some of the money that was already there. And he did it under conditions that were not merely unlike those of today…but almost the exact opposite.

Then, the US was still a creditor to the rest of the world, not a debtor.

Then, the US was still running positive trade balances, not losing money every month.

Then, US stocks were at bargain levels…selling for 5 to 8 times earnings; today, they’re twice as expensive.

Then, US bonds were cheap too…with yields for US Treasury debt as high as 18%, or nearly SIX TIMES as high as today’s long bonds.

Then, US households had debt of only 60% or 70% of their disposable income, not 120% like today.

Then, the Fed was determined to stifle inflation; now it is determined to cause it.

Then, the federal government’s debt was less than 40% of GDP. Now, it’s over 100%.

Then, even in today’s inflation adjusted terms, the US government ran a deficit of $197 billion. Today, the deficit is $1.1 trillion.

Then, stocks had been going down for the previous 14 years; bonds had been going down for at least 31 years. Now, stocks and bonds have been going up, generally, for the last 30 years.

This final point is now just a detail. It’s the heart of the matter. With bonds at a 30-year low, Paul Volcker could squeeze inflation…begin a 3-decade period of rising bonds (with falling interest rates)…and an 18-year bust in the gold market.

Will that happen again? Impossible!

What kind of strange history would it be if it could repeat itself…from totally different initial conditions? Could Napoleon march on Moscow…if he had started out in Chicago rather than Paris? Could Liz Taylor have married Richard Burton twice if she’d died in a traffic accident after her first marriage?

Can gold now repeat its path of ’80-’98, even though today’s situation is almost the opposite in every way?

No, dear reader, history doesn’t repeat itself. It just stutters out the same truths, over and over. G..g..g..g..gold is m…m…m…money. It says.

The N..N…New Y…Y…Y…York Times is full of s..s..s..s…

…error!

Who knows what the future will give us? We don’t. Not here at The Daily Reckoning…

…but we see what could be a bad moon rising. No, we’re not talking about a Great Correction…or even a Depression. Who really cares if GDP goes up or down? You can go broke with honor…with a sense of humor…and with grace and dignity. You can happily go broke.

But you can’t go to Hell with grace and dignity.

In the following article, the FBI notes that 18 people a year have been convicted, mostly of ‘white collar crimes.’ You wouldn’t think this would call for comment. But the FBI says these people are “extremists” who believe they have a right to protect themselves from what they see as an overbearing government. The G-men tell us that these extremists can turn violent “at the drop of a hat.”

How long before they’re rounded up? And maybe they’ll round up “potential domestic terrorists” too, even those who have never committed any crime? And what about gold bugs? They may look harmless, but they give aid and comfort to dangerous elements, don’t they?

Here is the FBI preparing the public for a trip to Hell.

(Reuters) — Anti-government extremists opposed to taxes and regulations pose a growing threat to local law enforcement officers in the United States, the FBI warned on Monday.

These extremists, sometimes known as “sovereign citizens,” believe they can live outside any type of government authority, FBI agents said at a news conference.

The extremists may refuse to pay taxes, defy government environmental regulations and believe the United States went bankrupt by going off the gold standard.

Routine encounters with police can turn violent “at the drop of a hat,” said Stuart McArthur, deputy assistant director in the FBI’s counterterrorism division.

“We thought it was important to increase the visibility of the threat with state and local law enforcement,” he said.

In May 2010, two West Memphis, Arkansas, police officers were shot and killed in an argument that developed after they pulled over a “sovereign citizen” in traffic.

Last year, an extremist in Texas opened fire on a police officer during a traffic stop. The officer was not hit.

Legal convictions of such extremists, mostly for white-collar crimes such as fraud, have increased from 10 in 2009 to 18 each in 2010 and 2011, FBI agents said.

“We are being inundated right now with requests for training from state and local law enforcement on sovereign-related matters,” said Casey Carty, an FBI supervisory special agent.

FBI agents said they do not have a tally of people who consider themselves “sovereign citizens.”

J.J. MacNab, a former tax and insurance expert who is an analyst covering the sovereign movement, has estimated that it has about 100,000 members.

Sovereign members often express particular outrage at tax collection, putting Internal Revenue Service employees at risk.

Regards,

Bill Bonner
for The Daily Reckoning

Why Gold is Money Despite Changing Conditions originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Well, Dear Reader, we’re here to tell you: America is in decline.

We can give it to you straight because we’re not running for public office. And if we were elected, we would immediately demand a recount.

Anyone who tells you America is not in decline is either running for office…or not paying attention.

In 1969, more than one out of every three dollars of income in the entire globe was earned in the US. That’s what the IMF’s World Economic Outlook tells us.

By 2000, that number had fallen…but not by much. The US still took home 31% of global income. But in the last 10 years, the US share has fallen hard — losing more than 7%. Now, only 23% of the world’s income is generated by the US.

Ten years ago, China’s economy measured about 1/8th the size of the US. Now, it is 41%. Another decade and it will be the biggest in the world. It is already bigger by several measures. And even if its growth declines to 7% a year, it will still surpass the US in a dozen years.

Hey, don’t take it personally. The entire developed world is in decline — with America leading them all down.

By 2050, according to a new study from HSBC, today’s emerging economies — as a whole — will be larger than Europe, America and Japan put together.

The New York Times reports:

The American economy’s reported 2.8 percent growth in the fourth quarter, at an annual rate, was seen as mildly encouraging. But it meant that over the previous 10 years, the economy had grown at a compound annual rate of just 1.7 percent. Until the current cycle, there had been no similar prolonged period of slow growth since the Depression.

The International Monetary Fund’s latest forecasts indicate that there is not likely to be a pickup in growth anytime soon, either in the United States or other large industrialized countries.

…if the fund’s forecasts of 1.8 percent real growth in 2012 and 2.2 percent in 2013 prove to be accurate, the 10-year American rate at the end of 2013 will have fallen to 1.5 percent… But it will still be a little above the 0.9 percent compound growth rate in the decade from 1929, the year the Depression began, to 1939.

For Britain, which endured a horrible decade in the 1970s that led to talk of the “British disease,” the previous postwar low, not shown in the charts, was in the 10 years ending in the second quarter of 1983, an annual rate of 0.95 percent. The figure for the 10 years through 2011 is 1.4 percent, but the I.M.F. predictions indicate the 2013 figure will fall to just 0.94 percent. The fund expects the British economy to grow by just 0.6 percent this year and by 2 percent in 2013.

The situation is even worse in Italy, where the fund expects the economy to contract by 2.2 percent this year and 0.6 percent the following year. If that happens, Italy’s economy will be smaller at the end of 2013 than it was 10 years earlier. The French economy is forecast to have grown at a 1 percent annual rate over the same 10-year period.

As the developed economies stagnate, the ‘emerging’ economies grow. Nineteen of the world’s top economies in 2050 will be those we regard as “emerging” today. China and India will hold the number 1 and number 3 spots, with the US sandwiched between them.

So far, we are just talking about numbers. Try to imagine a world in which today’s emerging markets have more economic power, and vastly more people, than today’s leaders. It is not just China and India who will be calling the shots, but Brazil, Turkey, Russia, Mexico and Indonesia too.

New technologies, new fashions, new ideas, new music, new cars, new movies…all are likely to come from countries where, today, Westerners are afraid to drink the water. Now, they are imitating us. Soon, we will be listening to pop Indian sitar music, eating doner kebabs and watching movies made in Jakarta.

Military power, too, is likely to shift to the growing economies. Like a body builder with a protein shake, they will use their increasing resources, human as well as material, to add muscle. But their muscle will be young, built with new technology and new techniques. America’s geriatric, expensive, bureaucracy-ridden, zombified military industry will be unable to match it.

It is one thing to talk nonsense to the voters. They love that kind of stuff. It flatters them. It comforts them.

But only a fool would believe it.

Which is what worries us. The candidates seem to think “declinism” is just a state of mind…and that economic and military success can be had by act of willpower.

“Decline,” writes Charles Krauthammer, “is a choice.”

And it’s a choice the candidates think they can avoid just by giving more money to America’s military industry.

“I will insist on a military so powerful no on would ever think of challenging it,” adds Mitt Romney.

But military spending is not a way to resist decline; it is a sign of it…and a cause of it. Osama bin Laden understood how it worked. By 2000, he had already brought one great empire, the Soviet Union, to its knees, luring it to spend money it didn’t have in a war it couldn’t win. He thought he could do the same to the US. So far, it looks as though he was right.

Lt. Col. Daniel L. Davis has been described as a “whistleblower.” He’s ratting out the military for failing in Afghanistan, just as Osama bin Laden predicted.

He doesn’t seem to understand. The military is not protecting the US in Afghanistan; there’s nothing to protect it against. Nor did it ever intend to “win” a war in Afghanistan. It never even identified what winning would mean or how it would know when it had won. This was always a zombie war, not a real war. Its purpose was only to transfer wealth and power to the military industry. In that sense, the war is a great success.

The Armed Forces Journal has the story:

Truth, lies and Afghanistan
How military leaders have let us down

By LT. COL. DANIEL L. DAVIS

I spent last year in Afghanistan, visiting and talking with US troops and their Afghan partners. My duties with the Army’s Rapid Equipping Force took me into every significant area where our soldiers engage the enemy. Over the course of 12 months, I covered more than 9,000 miles and talked, traveled and patrolled with troops in Kandahar, Kunar, Ghazni, Khost, Paktika, Kunduz, Balkh, Nangarhar and other provinces.

What I saw bore no resemblance to rosy official statements by US military leaders about conditions on the ground.

Entering this deployment, I was sincerely hoping to learn that the claims were true: that conditions in Afghanistan were improving, that the local government and military were progressing toward self-sufficiency. I did not need to witness dramatic improvements to be reassured, but merely hoped to see evidence of positive trends, to see companies or battalions produce even minimal but sustainable progress.

Instead, I witnessed the absence of success on virtually every level.

Regards,

Bill Bonner,
for The Daily Reckoning

When Emerging Markets Shape the Developed World originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

After reading the article, we concluded that Mr. Davidoff is the most creative financial writer around. As such, Mr. Davidoff may be the perfect apologist for today’s dysfunctional monetary “system.” Certainly, he possesses the cerebral alacrity to dodge whatever cold, hard facts may be standing in the way of a good story.

“I call the Fed a hedge fund,” Davidoff cheerily explains, “because it is operating like one, leveraging its balance sheet to earn huge profits.”

We might have been able to embrace Davidoff’s analysis were it not for one nettlesome fact: the Fed is absolutely nothing like a hedge fund. The Fed is, instead, more like a crime syndicate — a racketeer that relies on coercion, deception and outright larceny.

But before explaining The Daily Reckoning’s official metaphor for the Fed, let’s return to Davidoff’s metaphor and “analysis.” Says Davidoff:

Last year, the central bank turned over $76.9 billion in profit to the federal government, slightly down from $79.3 billion it provided in 2010.

The Fed made this money in interest on a nearly $3 trillion portfolio of securities. This enormous holding was built up largely in the wake of the financial crisis as the Fed bought these securities through two rounds of quantitative easing.

I call the Fed a hedge fund because it is operating like one, leveraging its balance sheet to earn huge profits. The main difference between a hedge fund and the Fed is that the Fed effectively creates its own money, so it doesn’t have any borrowing costs, meaning yet more profits.

Remarkably, the Fed’s profits are also an afterthought. The Fed is trying to stabilize and increase the United States economy in the wake of the financial crisis, and its profits are a nice byproduct.

Still, these earnings blow away any other hedge fund profits.

Hmmm… where to begin our autopsy of this fatally flawed analysis?

Let’s begin at the end with those earnings that “blow away any other hedge fund profits.”

If Davidoff is referring only to the Fed’s $79.3 billion “earnings,” without any regard for the denominator that produced those earnings, he is absolutely correct. No other hedge fund in the world came close to earning $79.3 billion in 2011, primarily because no other hedge fund in the world runs a $3 trillion portfolio. But obviously, the absolute number tells us nothing about the genius — or lack thereof — behind the Fed’s investment activities.

To get a feel for that, let’s now insert a denominator and calculate a return. Based on the $3 trillion portfolio that Davidoff cites in his column, the Fed produced a 2.6% return. That kind of number would not pop any year-end champagne corks in any hedge fund office in the land. [Editor’s note: In reality, the Fed’s balance sheet averaged about $2.75 trillion during 2011, not $3 trillion. But since $3 trillion is the number Davidoff uses, we’ll use it also].

But maybe Davidoff had a different return calculation in mind when he dubbed the Fed “the most successful hedge fund around.” Maybe he was thinking the denominator ought to be zero instead of $3 trillion, since, as he observes, the Fed “effectively creates its own money.” In this scenario the Fed’s investment activities would have produced a mind-boggling return of “infinity percent.”

Davidoff is absolutely right; no hedge fund can do that.

Or maybe Davidoff was thinking of a denominator somewhere between zero and $3 trillion. Maybe he had $676 million in mind, which is the actual amount of money the Fed spent last year printing new dollar bills. In this scenario, the Fed’s result would have been a spectacular 117.3%. That’s not quite infinity percent, but it’s not bad.

Unfortunately, there’s another problem with Davidoff’s analysis; the numerator is as much a mystery as the denominator. In other words, the Fed’s theoretical $79.3 billion return is a bogus Beardstown Ladies kind of number since it does not account for marking all the Fed’s securities to market. Without marking its vast $3 trillion portfolio to market, the actual results of the Fed’s investment activities are unknowable.

Perhaps the Fed’s hodgepodge of Treasury bonds, mortgage-backed securities, currency swaps and other financial jetsam increased in value during 2011, in which case the total return would have been higher than 2.6%. Or perhaps these holdings decreased in value, in which case the total return would have been lower than 2.6% — maybe even negative.

No one knows. (Or if they know, they aren’t saying).

Net-net, Davidoff’s analysis, expressed as a mathematical equation, would be greater than or equal to idiotic. That said, as a fellow journalist, we sympathize with Mr. Davidoff. We, too, have written things that should never have survived the copy-editing process. But when we have, we have heard about it from readers…just as Mr. Davidoff heard about it from many of the bloggers on Yahoo! Finance who responded to his column:

Kaos from Plainfield, Connecticut wrote:

Anything done by the NY Times is fire starter material.

Greg from Indianapolis wrote:

“The main difference between a hedge fund and the Fed is that the Fed effectively creates its own money, so it doesn’t have any borrowing costs”

Yeah…that is kind of an advantage…

RJ Wrote:

So the Fed made $76.9 billion from interest on US government debt, then turned that over to the Treasury Department?

Wait, what???

JR wrote:

Maybe this year [the Fed] will print a trillion dollars, turn it over to the Treasury, and this writer can say, “Look, a government operation made a trillion dollars while the idiots in the private sector flounder.” The New York Times is a disgrace.

Mark from Tulsa, Oklahoma wrote:

My 6-year old could make money if he could print dollar bills at will.

While we are sympathetic with these critiques, we can’t really be upset with Mr. Davidoff for producing his obsequious homage to the Federal Reserve, anymore than we can be upset with a puppy for peeing on the side of a brand-new flat-screen TV. To the puppy, the TV looks just like a fire hydrant. And to Davidoff, by his own admission, the Fed looks just like a hedge fund.

But it isn’t. The Fed is a crime syndicate that relies on deception, coercion and grand larceny. It is a racketeer.

“Several forms of racket exist,” Wikipedia explains. “The best-known is the protection racket, in which criminals demand money from businesses in exchange for the service of ‘protection’ against crimes that the racketeers themselves instigate. Traditionally, the word racket is used to describe a business (or syndicate)…that it is engaged in the sale of a solution to a problem that the institution itself creates or perpetuates, with the specific intent to engender continual patronage.”

’Nuff said!

Regards,

Eric J. Fry
for The Daily Reckoning

The Federal Reserve and Other Crimes Against Capitalism originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

We’d prefer to invite you to a quieter place, Fellow Reckoner…somewhere we could talk in private. A speakeasy, perhaps. Somewhere off the radar. Alas, that’s becoming increasingly difficult.

In fact, according to recruitment propaganda handed out by the FBI and the Department of Justice to Internet cafe owners across the country, a person may be considered “suspicious” if they “are overly concerned about privacy” or if he/she “attempts to shield the screen from view of others.”

Other “Potential Indicators of Terrorist Activities Related to Internet Café,” according to this particular flyer, include, “paying with cash,” traveling an “illogical distance to use [the] Internet Café,” acting “nervous” or exhibiting “suspicious behavior inconsistent with activities.”

What constitutes an “illogical distance,” we wonder? Two miles? Five? Twenty? What about visiting a cafe while on vacation? Is that an “illogical distance” from a person’s home? Come to think of it, what does an “illogical distance” even mean? Negative three miles? Minus six miles? Moreover, how would one even know the distance a person traveled to email grandma or fill out online job applications? Should we be spying on them?

Well… Yes, say the Feds.

If a fellow citizen arouses your suspicion — based on what must surely be the vaguest criterion imaginable — the federal agencies encourage you to “be part of the solution.” How? Well, they’d like you to…

“Gather information about individuals without drawing attention to yourself. Identify license plates, vehicle description, names used, languages spoken, ethnicity, etc.”

They’d like to recruit you, in other words. Just imagine, a whole community of spooks, moles, informants, sleuths and…

Wait…who WOULDN’T be nervous in an Internet Café in the USA these days?

And that’s not all. The Fed’s cheerfully-titled “Communities Against Terrorism” flyer series identifies 25 “threat areas” where you might encounter suspicious persons. These include such notorious ne’er-do-well hangouts as:

• Dive/boat shops

• Martial arts centers/Paintball

• Hobby shops

• Farm supply stores

• Financial institutions

• Electronics stores

• Shopping malls

• Hotels/Motels and, just to be on the safe side,

• The General Public

In each of these “threat areas,” the Feds helpfully outline a suggested course of action for those who wish to be part of their “solution.” Again, snitching, spying and behavior generally bordering on paranoia and harassment seem to capture the general gist of it.

For example, if you are out and about in the “General Public” one weekend and you happen to notice “people over dressed for the weather,” the Feds would like you to embark on a snooping mission, maybe even involving following “Mr. Tight-Knit-Cashmere-Cardigan-on-a-Late-Summer-Day” to his car. And don’t be scant on the details. Explains the flyer:

“Providing a detailed description of persons or vehicles is imperative for a successful follow up by law enforcement personnel.”

We’ll come back to exactly what a “successful follow up” means in just a second, but before we get to that…

What to do if your suspected, inappropriate fiber for the season-wearing, possible perp-to-be notices that you are on their tail? And what if, after being stalked through a public place by someone they don’t know, this sketchy individual becomes nervous and departs quickly when you approach them?

Well, they’re only digging themselves deeper. According to the Potential Indicators of Terrorist Activities Related to the General Public flyer, “departing quickly when seen or approached” could be grounds for further suspicion. It says so right there, in the section helpfully titled, “What Should I Consider Suspicious?”

Also in this section: “Questions regarding sensitive information such as security procedures or systems,” “Vehicles that appear to be overloaded,” and, again, just to be safe, “People acting suspiciously.”

But back to the “successful follow up” for a second. What, exactly, would that look like? What sinister plots and stratagems might all this covert invigilation and spying on each other help foil?

We told you about the foiled plot to destroy America involving two British, twenty-something hipsters last week. Well, now there’s the case of telecommunications sales manager Saad Allami, a man who knows a thing or two about living in a…eh…“watchful” community.

Mr. Allami was arrested last month while picking up his 7 year-old son from school in Quebec. During the next 24 hours, while he was being detained, a team of police officers (heroes/patriots/national treasures) stormed Mr. Allami’s home, telling his wife she was “married to a terrorist.” Meanwhile, Mr. Allami’s colleagues, who were on their way to a conference in the Big Apple were also detained at the US border for hours due to their “connection” with Mr. Allami.

And what had Mr. Allami done to deserve this, the swift hand of justice? The Canadian Press provides the shocking details of his master plan:

On Jan. 21, 2011, Allami sent a text message to colleagues urging them to “blow away” the competition at a trade show in New York City.

According to Mr. Allami’s lawsuit, “The treatment of the plaintiff and his wife was cavalier, illegal, aggressive, accusatory, and in violation of their most fundamental rights.”

Exactly as you’d expect, in other words.

Like we said, we’d love to have spoken to you in private, away from the prying eyes and ears of Big Brother…and his thousands of officious little goose-stepping generals on the ground.

But, as you can see, we can’t. He is everywhere. He is everyone and anyone. We know he is listening. And now, so do you.

Act accordingly.

Joel Bowman
for The Daily Reckoning

Why Personal Privacy is Now Public Enemy #1 originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Take for instance yesterday, when I said that thing in Greece were unraveling very quickly… Less than an hour after I hit “send” on the Pfennig, I saw a quote from French President, Sarkozy, who said, “we couldn’t be closer to a deal in Greece”… Hmmm… Seems that there was no reason for me to be so Donnie Downer on Greece! Yeah, and I’ve got some swampland I need to sell you… Hey Disney World was built on swampland, so you’ve got that going for you! HA!

This morning, the euro (EUR) has climbed back above 1.31, on news that the Greek leaders have agreed to meet today (now probably) to put the final touches on structural economic reform, which has been demanded by the Trokia (or Troika — tomato, tomato, it’s all the same) and consists of the IMF, the European Commission and the European Central Bank (ECB). The Trokia had demanded these economic reforms before the next round of bailout funds are released. The Greek leaders need to cut 850 million euros from their spending, which will account for 1.5% of GDP…

This trading range in the euro lately has been as tight as a pair of new shoes on a rainy day… The euro has either bumped up above 1.31, or fallen below it… 1.32 had been a tough row to hoe for the euro, and so, the trading range has been established… And I believe it will remain there as long as the Sword of Damocles is hanging over Greece…

Remember when I kept telling you that the Bank of Japan (BOJ) and the Finance Ministry were saber-rattling and trying to verbally intervene to get the yen (JPY) weaker, but that it wouldn’t be long before they were digging into that treasure chest of yen that has been allocated for intervention? And then nothing? Nada, zilch, zero, a big goose egg!

Ahhh Grasshopper, it only appeared to us that the BOJ was sitting on its hands… Last night the Finance Ministry released a report showing that the BOJ had conducted 1.02 trillion yen ($13 billion) worth of unannounced intervention during the first week of November. So, who knew? Who knew the BOJ could be stealth-like? This way, the markets weren’t aware of the intervention, because the BOJ spread it out, and was quiet about it… And it worked, (as best as intervention can, that is) bringing the yen from its post-WWII high of 75.35 to 76.50… But, that’s not what the BOJ had to have had on their minds… The yen is still too strong for exporters at 76.50, so… Can we expect to find out about more “stealth intervention”? I think so…

The Aussie dollar (AUD) is stronger this morning on a relief trade… The Reserve Bank of Australia (RBA), unexpectedly left rates unchanged, and instead of dire words, signaled optimism that global economic growth will strengthen. The Aussie dollar touched $1.0810 after the rate announcement, but has since fallen back below $1.08… But not far, and still stronger than yesterday!

The New Zealand dollar/kiwi (NZD) really liked the fact that the RBA left rates unchanged, because it has clutched on to the Aussie dollar’s coattails in recent times, and if the Aussie dollar is going to rally on the news, then kiwi gets to rally too!

I see where The Washington Post, (WP) must have a Pfennig reader… For they ran a report last night about how the unemployment rate here in the US is falling because of the millions of workers who have given up looking for work… The Washington Post writer believes that if all 2.8 million people who have given up looking for work were actually counted as “unemployed” that the Unemployment Rate would be 9.9%, not 8.3%…

Of course, the WP writer would do a better job if they dug even deeper into the phony, trumped up BLS labor report, to find how John Williams at Shadow Stats thinks the unemployment rate is really 22%…

While I’m here in the US, St. Louis Fed Head, James Bullard was speaking in Chicago yesterday, and had this to say about the Fed keeping interest rates near zero to counteract a high degree of slack in the US economy… “If we continue using this interpretation of events, it may be very difficult for the US to ever move off of the zero lower bound on nominal interest rates. This could be a looming disaster for the United States.” — James Bullard.

Fed Head Bullard is telling you all and anyone who will listen that we are all turning Japanese! He didn’t say it, but the scenario he described is exactly what has happened to Japan… I sure hope someone is listening in the Fed Head circles…

Today, the data cupboard will print Consumer Credit for December… You may recall how this number exploded in November by $20 billion… Well, December credit is expected to hit $7 billion… This data is covered little, and I wonder why… It’s very telling about what’s going on, don’t you think?

Over in Germany this morning, the December print of Industrial Production (IP) was very weak, as it decreased 2.9% from November. There could be two things at work here… First, there’s not much work that gets done as Christmas closes in for German workers… And second, the German economy softened… But none of the other data we saw from this time period indicated that, so I’m going to go with what’s behind door number 1!

Today, Big Ben Bernanke will testify before the Senate on the economic outlook and the Federal Budget situation… Last week, when Big Ben talked to the House, the lawmakers tried like all get out to get Bernanke to fess up to messing up the economy, but as I reported here on Friday, he redirected the lawmakers questions to him talking about what he wanted to talk about, which was how he wants the lawmakers to get deficit spending under control.

It will be interesting to see how Big Ben is treated in the Senate… Either way, he’s a master of redirecting, and the talk will all come back to lawmakers getting deficit spending under control! Which is a good subject to talk about, but I’m sure what the lawmakers have to say about what Bernanke is doing to the dollar is also a good subject to talk about!

Last week I told you how the Swiss franc/euro cross rate was nearing the floor of 1.20 that the Swiss National Bank (SNB) set last fall. I said then that it would be interesting to see the SNB’s resolve in defending this cross level… New SNB Chairman, Thomas Jordan, is setting the markets straight on his resolve. Jordan said, “We remain firmly committed to defending the minimum exchange rate of 1.20 francs per euro. This commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday. We will not tolerate any trading below the minimum rate.”

Well… I guess he told the markets where he stand, eh? But… As I’ve said before, money talks and bulldookie walks… It’s now up to the markets to see if the SNB is really going to defend the cross or not… Which, by the way, this morning is weaker than it was last week at 1.2070…

One of the things that I look at periodically is the “misery index”, which is comprised of the Unemployment Rate and the inflation rate… I like to see where the US is compared to other countries like Norway and Australia or Canada, etc.

Well, my most recent look at the Misery Index showed the following recent results…

US 11.30% up from 2011’s 10.60%
Canada 9.9% down from 2011’s 10.10%
Norway 3.0% down from 2011’s 5.9%
Australia 8.3% up from 2011’s 7.60%

I think it is important to a country’s psyche to have a lower misery index number…

So… If that’s as interesting to you as it is to me, I’ll keep this up-to-date going forward.

I see where the 3.6 million workers in the German metal and electrical industries union are demanding 6.5% wage increases. This is going to be a very heated negotiation, because in 2010, German companies did quite well, but… Most economists believe that the German economy will slip this year, along with the rest of the Eurozone, into a recession…

And in the UK it appears that the Bank of England (BOE) will extend their bond purchase program (quantitative easing)… And remember what I’ve told you now for a couple of years… What happens in the UK usually comes ashore here within 6 months… So, if the BOE is extending QE, then the Fed will be doing it soon enough…

And gold is still trying to find traction to move higher, as it slips on the overall better feeling about what’s going on in the global economies… I find this to be temporary… So, could be a good time to pick up some gold at cheaper prices, eh? I said could be…

Then there was this… From The Economist… First, I’ll give you the snippet of the Economist story and then tie it all together in a neat bow… OK… Here’s The Economist… “China and the US might be laying the foundation for another Cold War over China’s territorial claim for the South China Sea, The Economist’s Banyan columnist writes. None of the nations with interests in the South China Sea is making progress toward settling disputes. “So the chances are that America, with its mighty Navy and abiding interest in the freedom of navigation and commerce, will become still more involved.” — The Economist

Chuck again… Remember Rome? Remember how the Roman army got too extended putting out fires everywhere? Hmmm… Iraq, Afghanistan, Iran, South China Sea, doesn’t this scare anyone else?

To recap… The RBA left rates unchanged, and surprised the markets last night, sending the Aussie dollar over $1.08. It has slipped back below the figure this morning, but still stronger than yesterday! Japan has been doing stealth intervention to keep a lid on yen, going back to November, and The Washington Post figures out the funny bookkeeping at the BLS…

Chuck Butler
for The Daily Reckoning

RBA Sounds Upbeat About Global Economic Growth originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.