I hear that you’ve had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don’t understand some basic monetary principles, making things even more unsettling.

But I want you to know that the problems you’re experiencing are actually nothing new. I’ve seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you’re safe with me. That’s a bold proclamation, but I’ve provided monetary protection numerous times throughout history — too many to count, in fact. I’ve served all kinds of people over the centuries, from kings and counts to serfs and servants.

To put your mind at ease, let’s review my core characteristics, along with some history, to show how I can protect you against the monetary danger that’s likely to worsen in your near future. We’ll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we’re done, I think you’ll feel much better about my ability to help your portfolio withstand whatever is thrown its way.

Enduring Characteristics

Let’s start with the basics. I have some characteristics that no other matter on Earth has…

I cannot be:

• Printed (ask a miner how long it takes to find me and dig me up)
• Counterfeited (you can try, but a scale will catch it every time)
• Inflated (I can’t be reproduced)

I cannot be destroyed by;

• Fire (it takes heat at least 1945.4 degrees F. to melt me)
• Water (I don’t rust or tarnish)
• Time (my coins remain recognizable after a thousand years)

I don’t need:

• Feeding (like cattle)
• Fertilizer (like corn)
• Maintenance (like printing presses)

I have no:

• Time limit (most metal is still in existence)
• Counterparty risk (remember MF Global?)
• Shelf life (I never expire)

As a metal, I am uniquely:

• Malleable (I spread without cracking)
• Ductile (I stretch without breaking)
• Beautiful (I am the ultimate accessory)

As money, I am:

• Liquid (easily convertible to cash)
• Portable (you can conveniently hold $30,000 in one hand)
• Divisible (you can use me in tiny fractions)
• Consistent (I am the same in any quantity, at any place)
• Private (no one has to know you own me)

I am internationally accepted, last for thousands of years, and probably most important, you can’t make any more of me.

And by the way, don’t fret about those who say I’m not as good an asset as an income-producing vehicle. They misunderstand my role. I’m not trying to be a stock, for example. My function is as money and a store of value, so the proper comparison is to your dollars, or what you call Treasury Bills (of similar nominal value). And here is where I excel and serve my purpose: since 1913, the US dollar has lost 96% of its purchasing power. I have lost none.

Remember, I am the only financial asset that is not simultaneously someone else’s liability. I don’t require the backing of any bank or government.

The History Lesson

Because I am eons old, I’ve observed something throughout history that you may not be aware of: government fiat currencies are a relatively new invention, and none has endured.

Eventually, they have all failed. Me? I’ve never been defaulted on or worth zero. Remember this the next time you have any doubts about my long-term worth.

You can rest assured that over time, I will hold my value. And when you near the end of your life, you can pass me on to your loved ones, knowing full well they will have something that cannot be devalued, debased, or destroyed.

What Color Is Your Money?

Like you, I’m concerned about the current state of fiscal and monetary affairs. It seems your government leaders have boxed themselves into a corner. They’ve incurred too much debt and are spending too much money. It’s important that you understand some lessons from history about this kind of behavior so that you’re certain of what I can do for you.

The common denominators that lead to the downfall of every fiat currency are the two big Ds: debts and deficits. With that in mind, consider the following:

• Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they have exceeded 80% of GDP. US government debt will exceed 100% of GDP this year.
• Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” By some estimates, the US will hit that ratio this year.
• Peter Bernholz, a leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” Next year’s US budget deficit is projected to be $1.3 trillion.

The solution many of your leaders are pursuing is to create more currency units. The US monetary base has exploded 205.8% during the last three years, while my price is only up 65.8%. This fact, alone, implies that my price in dollars is likely to climb much higher.

This is also the reason why I’m not in a bubble, as some have tried to claim. It is your central banks and bond markets that are in a bubble. The fact that my price is rising is a warning that what your leaders are doing is unsustainable and potentially dangerous to your currency.

Think about this: the US has debt backed by debt, based on debt, dependent on debt, and leveraged with debt. You can, for example, buy a bond (i.e., lend money) on margin (i.e., with borrowed money). This is not a sound way to run financial markets.

Meanwhile, the warning bells continue to sound regarding Europe’s debt crisis. In just the past 30 days:

• Moody’s cautioned that it may cut the triple-A status of France, Austria, and the UK; and it downgraded six other European nations including Italy, Spain, and Portugal.
• Standard & Poor’s cut the triple-A status of France and Austria, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia, and Slovenia were downgraded.
• Fitch downgraded Belgium, Cyprus, Italy, Slovenia, and Spain, and stated there was a 50% chance of further cuts in the next two years.
• Standard & Poor’s downgraded 34 of Italy’s 37 banks.
• Moody’s warned just last week that it may cut the credit ratings of 17 global financial institutions and 114 European ones.

The European crisis is far from over; and the path of least resistance for politicians is to create more currency units. This action can and will have clear and direct consequences: currencies will devalue, and inflation — perhaps hyperinflation — will result.

Once again, I encourage you to use me to protect some of your wealth.

How Much Is Enough?

Given the state of your monetary system, you should accumulate me (and silver) on a regular basis. Just buy some every month and put it in a safe place. After what I’ve witnessed throughout history, and based on the current path your government leaders insist on pursuing, I suggest using me as your savings vehicle instead of putting dollars in a bank.

If you don’t own enough of me when these fiscal troubles really accelerate, I fear you will regret it. I’ve warned many in the past about the dilution of nations’ currencies, and those who didn’t heed my warnings experienced severe financial pain. Excuses won’t pay the mortgage nor feed the family when the effects of currency debasement hit your home and pocketbook.

Make sure you own enough of me to make a difference to your portfolio. This means having more than a couple coins or a few shares of GLD, the latter of which is only a proxy for my price.

How do you know if you own enough? Ask yourself:

• If inflation returns, or even hyperinflation hits…
• If the economy is flat…
• If uncertainty and fear continue around the globe…
• If stock markets languish…
• If the amount of spending from the world’s governments proves futile…
• If government interference in the economy continues to increase…
• If the value of the US dollar takes a major fall…
• If the world enters a recession or depression…
• If you wonder if you have enough “safe” money…

…would you feel that you own enough of me?

Buy a sufficient amount so that as your currency continues to lose value, your portfolio won’t. If you do your part, I promise I’ll do mine.

Your monetary friend,

Gold

—

Regards,

Jeff Clark,
for The Daily Reckoning

By Gold 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, no beating around the bushes this morning… Since yesterday, we have an all-out currency rally going on. Yesterday, the euro (EUR) was flirting with 1.33, and today, it is sending love notes to 1.34. The single unit actually touched 1.34 overnight, but currently sits just below that figure. Unbelievable, right? Well, it just shows to go you that even the ugly currency gets taken out and dined! I called it an ugly currency because many of you know that I’ve referred to the dollar/euro as an ugly contest. Right now, it appears that the dollar is winning the ugly contest. But as we all know all too well, that can change in a heartbeat…

Well, the price of oil has soared again, this time passing $108! When I saw that this morning, I immediately shifted my focus to the currency screens to see where the Canadian dollar/loonie (CAD) was trading. And much to my surprise, the loonie is trading in yesterday’s clothes, and in fact, the same clothes all week! What’s going on here? The price of oil is really pushing the envelope once again, and the loonie is stuck in the mud? Hmmm…

I think that the fear that this rise in the price of oil is going to be a tax on the nascent recoveries in the U.S. and other countries is keeping a lid on the loonie right now…

One other thought on the rise in the price of oil… maybe I’m looking at this incorrectly! Maybe oil has become another anti-dollar. So the price of oil is rising because the dollar is falling? Something to think about, anyway…

It’s not keeping a lid on the Aussie dollar (AUD), though! Earlier this week, I talked about how the A$ was searching for wind after having it knocked out of it on Monday by the RBA minutes. Well, I think the A$ finally found its wind overnight… I told you when I first talked about the RBA minutes that we’ve seen this scenario before, and it took only a couple of days for the calmer heads to prevail and start pushing the A$ up again… Well, it looks as if that happened again. And even though the RBA kept their “easing bias,” I’m of the opinion that they are finished with this current rate cut cycle. And once the markets get wind of this (it will take them longer because they have to read it here first! HA!), the A$ will be back on terra firma!

The other petrol currencies from Norway, Russia, Brazil and even Mexico are all seeing a rally on the back of the rise in the price of oil.

I wrote earlier this week about the Norwegian krone (NOK) appearing as though it had broken the spell that the euro held over it. Now, even with the euro rallying, the krone is still outperforming the euro… I sure hope the spell has been broken for good, because fundamentally speaking, the krone should not be tarred with the same brush as the euro!

Did you see the story from yesterday in which 200 billion yen (JPY) of pension assets held by money manager AIJ (in Japan) are missing? The Japanese SEC suspects that AIJ faked investment reports to clients. So the corporate scandals that the U.S. is known for have spread to Japan… Which is not what the Japanese yen needs right now…

I saw a video yesterday that really got me thinking. The video was a quickie about all the young kids that voted in the last election. They have become the “Debt Generation,” for more than $4 trillion in debt has been added to our national debt in the past four years. My oldest son, Andrew, actually shows the movie I.O.U.S.A. to his class and quizzes them on it. But think about this for a minute. I.O.U.S.A. was made four years ago. Imagine if my friend Addison Wiggin was to make that movie/documentary now?

Where is the Tea Party? Have they faded away? I say this because I saw this story in The Washington Post yesterday: “The national debt is likely to balloon under tax policies championed by three of the four major Republican candidates for president, according to an independent analysis of tax and spending proposals so far offered by the candidates.

The lone exception is Texas Rep. Ron Paul, who would pair a big reduction in tax rates with even bigger cuts in government services, slicing about $2 trillion from future borrowing.”

So as I’ve said for a couple of years now, there’s no political will to cut spending, no matter who is leading the charge.

I read that story and immediately went to my account and checked on gold and silver holdings. Why? To see if I have enough! With all that spending going on, the dollar is going to lead the fiat currency system to the land of failed fiat currencies. Of course, that’s just my opinion, and I could be wrong…

And the thing I like to point out whenever I’m on the road and I make a statement like that is that while the fiat currency system is faltering, the dollar leads the way, so there will be currencies that remain stronger than the dollar. Again, just my opinion.

Gold (and silver) had another nice performance yesterday and is now a stone’s throw from $1,800. I’m told by a chartist that $1,803 is the next psychological figure for gold. Should it trade past $1,803, the charts say a HUGE rally could follow…

G-20 finance ministers and central bankers are going to meet in Mexico this weekend. Do you think the eurozone’s debt situation will be discussed? You bet! Of course, I would prefer them to talk about what to do about debt everywhere, not just the eurozone!

Fed head Dudley, who’s always good for sound bites on the economy, will be speaking today, along with Fed heads Plosser, Bullard and Williams. It was revealed about a month ago that Dudley owns a ton of gold, which is curious to me due to the call by the Fed for more inflation. Hmmm…

Not much for the data cupboard today: new home sales and U. of Michigan consumer confidence. Yesterday’s cupboard showed us that weekly initial jobless claims remained at 351,000.

Speaking of the Fed heads this morning, I saw this story on Reuters:

“Seeking to make good on past threats in Congress to rein in the Federal Reserve’s powers, a prominent Republican lawmaker said on Thursday he will introduce legislation to focus the U.S. central bank on a single mandate to fight inflation and protect the dollar’s value.

“Rep. Kevin Brady, vice chairman of the Joint Economic Committee, said in a statement his “Sound Dollar Act” aims to “maintain the purchasing power of the dollar in order to foster long-term economic growth and stability.” He plans to formally introduce it in early March.”

Good luck with that “Sound Dollar Act”! Brady might want to wait until March 17, so he can have the luck of the Irish on his side! But as I said earlier, there’s no political will to cut spending, and to cut spending and lower the national debt is the only way to a “sound dollar,” in my opinion…

To recap: The stabilization of the eurozone continues and is fueling a currency rally that has gone on for two consecutive days now. The euro has climbed back to 1.34. Gold is now a stone’s throw from $1,800. The price of oil is above $108, and the petrol currencies of Russia, Norway, Brazil and Mexico are enjoying that move, while the loonie is kept out of the rally. And the Australian dollar has found its wind again…

One more thing: Yesterday, I referred to the Aussie foreign minister, who stepped down, Rudd, as the finance minister. My faux pas. I didn’t realize I had so many Aussie readers! They all let me know my mistake, as they should have.

Chuck Butler
for The Daily Reckoning

Is Oil the New Anti-Dollar? 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 Islamic Republic, logically, religiously and theoretically, considers the possession of nuclear weapons a grave sin and believes the proliferation of such weapons is senseless, destructive and dangerous.”

Heh.

“No one buys Iran’s claim that its nuclear program is for peaceful purposes,” declared CNN’s Erin Burnett last week, speaking authoritatively on behalf of the pundit class in the U.S.

Sigh. We’ve seen this movie before.

“The debate surrounding the invasion of Iraq,” we wrote in the first edition of Empire of Debt, “was an imperial debate — about means and methods, not about right and wrong or national interest.”

“No one from either major political party bothered to suggest that the United States had no business nosing around in other peoples’ business.”

“Both parties recognized that Iraq was not a matter of national interest — it was a matter of imperial interest. No sparrow falls anywhere in the world without triggering a monitoring device in the Pentagon.”

This time, at least, there’s a variation on the theme.

In 2003, you heard nary a word about whether Iraq really had weapons of mass destruction… or whether an invasion might turn out to be something other than a sprint to victory.

This time around — while you wouldn’t know it by listening to knuckleheads like Burnett — there’s considerable skepticism even among the imperial classes about whether Iran aims to produce a nuclear weapon… or whether a military attack on Iran would work out well.

“Tehran has not made a decision to proceed with developing a nuclear weapon,” said Defense Secretary Leon Panetta to Congress a week ago today, trying to stifle the first question. A National Intelligence Estimate issued by the Obama administration last year affirmed a similar report issued by the Bush administration in 2007: Iran stopped pursuit of a nuclear weapon in 2003.

Darn it.

As for the second question, “Both the American and Israeli governments,” writes Peter Beinart at The Daily Beast, “boast military and intelligence agencies charged with answering [the question of whether military attack would be wise]. With striking consistency, the people who run, or ran, those agencies are warning — loudly — against an attack.”

What’s wrong with these people?

Mr. Beinart was among a cadre of “liberal hawks” who gave the Iraq war a good name nine years ago. Now he’s turned into a wuss. Among the warnings he cites:

• Lt. Gen. Ronald Burgess, director of the Defense Intelligence Agency, told Congress last week, “the agency assesses Iran is unlikely to initiate or provoke a conflict”

• Director of National Intelligence James Clapper — who oversees 16 U.S. intelligence agencies — estimates a U.S or Israeli attack would set back Iran’s nuclear program by only a year or two

• Further, Joint Chiefs Chairman Gen. Martin Dempsey says a U.S. or Israeli attack would “guarantee that which we are trying to prevent: an Iran that will spare nothing to build a nuclear weapon.”

“I’ve never seen a more lopsided debate among the experts paid to make these judgments,” Beinart goes on. “Yet it barely matters. So far, the Iran debate has been a rout, with the Republican presidential candidates loudly declaring their openness to war and President Obama unwilling to even echo the skepticism of his own security chiefs.”

“War is no longer made by simply analysed economic forces if it ever was,” Ernest Hemingway wrote in an essay entitled “Notes on the Next War: A Serious Topical Letter,” published by Esquire in 1935.

“War is made or planned now by individual men, demagogues and dictators who play on the patriotism of their people to mislead them into a belief in the great fallacy of war when all their vaunted reforms have failed to satisfy the people they misrule.”

As such, Congress is moving quickly. A bipartisan group of senators introduced a bill last week that:

“…rejects any United States policy that would rely on efforts to contain a nuclear weapons-capable Iran; and urges the president to reaffirm the unacceptability of an Iran with nuclear weapons capability and oppose any policy that would rely on containment as an option in response to the Iranian nuclear threat.”

Leave aside the fact the bill leaves the definition of nuclear weapons “capability” murky. The point is that if Iran crosses this new red line, it compels the United States to go to war.

“Imagine,” writes M.J. Rosenberg of the Israel Policy Forum, “if President Kennedy had been told by the Congress back in 1962 that if the Soviet Union placed missiles in Cuba, he would have no choice but to attack the USSR. If it had, I wouldn’t be here writing this column today, and you wouldn’t be reading it.”

Right now, this is nonbinding legislation. But it has the support of the American Israel Public Affairs Committee. “Often, AIPAC-backed congressional initiatives start as nonbinding language (in a resolution or a letter), and then show up in binding legislation,” says Lara Friedman of Americans for Peace Now.

“Once members of Congress have already signed on to a policy in nonbinding form, it is much harder for them to oppose it when it shows up later in a bill that, if passed, will have the full force of law.”

Addison Wiggin
for The Daily Reckoning

Dancing Around War With Iran 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.

Imagine! Not a single one of them mentioned Ashton Kutcher’s break-up with Demi Moore.

Anatabloc is a dietary supplement for anti-inflammatory support of the immune system. Since many disorders, like coronary artery disease, diabetes, asthma, Alzheimer’s, and rheumatoid arthritis, are caused by chronic low-level inflammation, Anatabloc is a potential preventative treatment for these diseases.

Not coincidentally, those friends at the party who did not rank the emergence of Anatabloc as one of the most important events of the year are younger, not yet suffering from the inflammation-related medical conditions that set in during middle age. Some of them take Anatabloc anyway because it is a safe monoamine oxidase inhibitor, or MAOI. MAOIs are antidepressants that aid in focusing and task accomplishment. The term “MAOI,” by the way, is often pronounced like the Hawaiian island of Maui.

I’ve seen emails from a number of my subscribers who report similar dramatic improvements in inflammation-related conditions. Typically, I also hear that they have started giving Anatabloc to friends and family, who also report improvements in inflammatory conditions. Then the cycle repeats.

For older men, one of the most commonly reported impacts of Anatabloc is improvement in urinary tract or prostate problems. As men age, inflammation of the prostate leads to reduced bladder capacity, which is more than an inconvenience. Not only do prostate problems interfere with sleep, requiring multiple trips to the bathroom at night, but they usually precede prostate cancer.

Not coincidentally, recent research shows that statins are associated with reduced risk of prostate cancer. The reason, I think, is intuitively obvious. If the cells of an organ — whether it is the prostate or the thyroid — are swollen, they are not functioning as they should. Moreover, they become the targets of the immune system’s inflammatory axis, which worsens cell health. In time, this vicious circle cascades to the point of organ damage, failure or cancer.

This is important because the anti-inflammatory effects of Anatabloc have been shown by the Roskamp Institute to be greater than the leading statin, Lipitor. The name of the study is, “Statin Use and Fatal Prostate Cancer.”

Moreover, the world-class scientists who are researching anatabine citrate continue to speak regularly to large numbers of health professionals at scientific conferences as well as less-formal events. Here, by the way, is a summary of the important research done at the Roskamp Institute.

It is not chance that Anatabloc is arriving outside the realm of FDA control. The FDA was set up to minimize patient risk from new therapies — even though it slows access to newer and more-effective therapies. This institutional wet blanket has motivated many brilliant scientists and innovators to look for effective compounds in nature, which is unregulated by the FDA.

Anatabloc, therefore, illustrates one of the most poignant ironies of our time. On the one hand, we are seeing the inevitable collapse of utopian political fantasies implemented in capitals ranging from Sacramento, Calif., to Madrid, Spain. On the other hand, we are witnessing astonishing breakthroughs that are actually being accelerated by the downfall of out-of-control government.

Anatabine citrate is only one such breakthrough, but you shouldn’t underestimate it. The reduction in inflammation-related illness will not only deliver dramatic improvements in the quality of life for hundreds of millions of people, but will change our entire demographic picture.

Anatabloc, by the way, will not be the last disruptive and lucrative therapy to come from the application of modern scientific investigative technologies to the uncountable molecules that exist in our biological biosphere. In the past, I’ve been a relentless debunker of so-called natural products. This is due to widespread quackery in the natural-products industry.

That, however, has changed. There are just as many scams as ever being sold in health food stores, but true innovations like Anatabloc are also arriving. Most are still generally unknown to the public, but in the next few months, I’m going to be telling you about additional breakthroughs in this field.

So don’t be discouraged by the “directionless” financial markets. Instead, pay attention to the astonishing number of revolutionary scientific and technological breakthroughs that are coming our way.

As these breakthroughs dramatically improve many aspects of our lives, they will also provide “life-changing” investment opportunities.

Regards,

Patrick Cox,
for The Daily Reckoning

A “Nutraceutical” Game-Changer 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.

So, what well-chosen words can we leave you with?

How about “if,” “but” and “maybe?”

Yes, dear reader, if everything continues to clunk along as it is today…maybe the world financial system will hold together until we get back.

We certainly hope so. We’ve been waiting years to watch the final crack up of the phony-money system. We don’t want to miss it!

But you never know. For all we know, the system is cracking up now…right before our eyes. We just don’t recognize it.

Take this item from yesterday’s news. It proves that Lent is bad for you:

WASHINGTON (AP) — Europe has endured the pain of layoffs, wage cuts and tax increases designed to bring government debt under control.

So where’s the gain?

Far from falling, debt burdens are rising fastest in European countries that have enacted the most draconian austerity programs, according to The Associated Press’ Global Economy Tracker, which monitors the performance of 30 major economies. The numbers back up what many analysts say: Austerity isn’t just painful. It can be counterproductive and even make a country’s debt load grow.

Many fear the cutbacks will cause Europe to sink into a self-defeating spiral: Higher debt leads to harsher austerity, growing social instability and deeper economic problems. Governments could find it even harder to pay their bills.

The pain is already intense. Portugal’s unemployment rate hit a record 14 percent at the end of last year. Ireland’s economy contracted a worse-than-expected 1.9 percent in the July-September quarter of 2011. And Greece reported that its already basket-case economy shrank 7 percent in the October-December quarter of last year.

“This isn’t a healthy situation,” says Peter Morici, an economist at the University of Maryland.

Under a deal approved Tuesday by the 17 countries that use the euro and the International Monetary Fund, Greece will get a $172 billion bailout in exchange for accepting another dose of austerity that includes laying off 15,000 civil servants and slashing the minimum wage by 22 percent.

— Portugal cut pensions, reduced public servants’ wages and raised taxes starting in 2010. Yet in the third quarter of 2011, government debt equaled 110 percent of GDP. That was up from 91 percent a year earlier.

— In Ireland, middle-class wages have been reduced 15 percent and the sales tax boosted to 23 percent (the highest in the European Union). But its debt amounted to 105 percent of economic output in the third quarter of last year; a year earlier, it was 88 percent.

— In Britain, Prime Minister David Cameron staked his political future on his austerity plan. Government debt ratios, though, reached 80 percent in third-quarter 2011, up from 74 percent a year earlier. And Moody’s this month cut its outlook on Britain’s prized AAA credit rating from “stable” to “negative.”

— In Greece, two years of austerity programs have devastated the economy and triggered riots. Still, the government’s debt equaled an alarming 159 percent of the country’s GDP in the July-September quarter of 2011. That was up from 139 percent a year earlier.

Oh, what luck! Now Paul Krugman and other spend-spend-spend economists and policymakers have the argument sewn up.

Before they argued that a) additional spending and big deficits were “stimulus” measures. They were supposed to make things better.

Now they can prove that b) cutting spending is bad for an economy. It makes the economy worse off…without actually reducing debt.

If they can’t win on A, they can’t lose on B.

We don’t want to exaggerate the importance of this. But it is as if Mardi Gras is good for you. But Lent is bad for you. Austerity doesn’t work. Spending makes things better. Not spending makes them worse. It is as if the debit side of the balance sheet has been cut off. All credits, in other words. Forget the debits. It is as if we could all have everlasting life without ever dying.

Maybe they could show that it works the same for dieters. Maybe they could prove that cutting back on their eating actually causes them to gain weight. From there it would be only a hop-skip-and-jump to concluding that they should eat more!

Sometimes it seems as if the whole progress of the 21st century has been used to remove the impediments to catastrophe — good sense, prudence, tradition, rules, principles, and the lessons — learned at such great cost over so many centuries. Like unread copies of The Wealth of Nations or The Decline and Fall of the Roman Empire, they are tossed into the trash bin. No stain of history is left on the spotless mind of the new century.

The century began with George W. Bush’s ‘pre-emptive war’ doctrine — contradicting everything nations had learned over at least 2000 years. Even the Romans new better than to go to war unprovoked. Not that the attacker can’t win from time to time. But an aggressor nation sets the gods against himself; eventually, he is punished…often brutally. We saw that as recently as 7 decades ago, when the aggressor nations of WWII — Germany, Italy and Japan — were crushed.

But now the US is the aggressor. Can good guys be bad guys? We don’t know, but we think we see the gods edging over to the other side.

So too was it long established that the rule of law was more comfortable and agreeable than the rule of men. Law was predictable. Law was fair.

Men were given to prejudice, perfidy, and power-struggles. Especially in a matter as important as war, the highest authority in the US — the Constitution — makes it clear that the law must be followed. Congress had to consider, debate and decide.

But that law went out the window long ago. In the 21st century it was forgotten altogether. Now, the president can decide for himself how and when to waste the nation’s treasure and the lives of its young men and women. Iraq, Afghanistan, Libya…Sudan…Pakistan…where were the declarations of war?

Who needs them? Besides, they just got in the way of catastrophe.

And what about Habeas Corpus? That’s gone too. Established hundreds of years ago, to protect citizens from the arbitrary power of their own government, habeas corpus is…well…history. Now, the president can decide who lives and who dies…who gets sent to jail…and who lives at taxpayer expense.

But our beat is money. And in the world of money, too, the constraints that kept people from going into bankruptcy and ruin have been removed.

Once government leaders were ashamed of deficits. Now they’re proud of them.

Once, economists, finance ministers and heads of households tried to avoid debt; now they welcome it.

Once, a central banker who created money “out of thin air,” had his private parts cut off; now his manhood grows with the money supply.

Once, a banker who lent money at less than the inflation rate was regarded as a fool; now he is seen as a hero.

Once, we were happy…young…handsome…and now…oh, never mind.

That’s all for us…we’re headed for the hills.

Regards,

Bill Bonner,
for The Daily Reckoning

How Austerity Hinders an Economic Recovery 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.

German business confidence as measured by the think tank IFO rose more than was forecast this month and reached a seven-month high. I know that to eurozone members, a great weight has been lifted off their shoulders for now. But in reality, the Greeks have a very long road to travel, and one stumble could end up sending these confidence reports right back down, along with the euro.

The folks at the IFO institute say that German business confidence rose for a fourth consecutive month, to a seven-month high back to last July. And it plays well with my call last month that we would begin to see stabilization of the eurozone, as the “center holds”…

A dear reader sent me a note that blasted the ECB for what they did to Greek bondholders. But in reality, and not that it’s “right”… It’s the same thing the US government did to Chrysler bondholders in 2008… Don’t remember that? Ahhh, grasshopper, that’s exactly what the government would prefer you did — forget their moves, and they just have to abhor a smarty-pants like me that reminds everyone what went on… I told the Big Boss, Frank Trotter, the other day that one day, probably when I’m long gone, what I do will be twisted by the government to be considered “terrorist.” But for now, I don’t have to worry, although Big Brother is looking over my shoulder all the time!

Early this week, I told you that I thought the Japanese housewives were back… Uridashi bonds were flying of the shelves again, and guess what else is happening again? The carry trade! Yes, that trade in which an investor sells a low-yielding asset like a currency and buys a high-yielding asset/currency… They book the interest rate differential just as a bank does between deposit rate and lending rate… As long as the currency they sold (and probably sold short, without owning it) doesn’t rally, the trade looks like a real winner…

Remember in 2008, when all hell broke loose in the markets? There were more “carry trades” on the books than you could shake a stick at. With all the world collapsing around us, these carry trades were unwound… and yen (JPY) was able to gain, along with Swiss francs (CHF) and US dollars, which were the bellwethers for funding currencies (sell side) for the carry trade… and unwinding the trade meant those sold positions had to be reversed (bought).

So far, it looks as if Japanese yen is the poster child for these trades, as the dollar hangs on, losing ground grudgingly, and the Swiss franc continues to defy gravity. But remember, March is the Japanese year-end, and we always see some activity in March, as yen is repatriated home to shore up, clean up and close up the books. So this all-out weakening by the yen may have a stay of execution in March…

Speaking of Swiss francs… The floor level for the franc/euro cross is 1.20, as set by the Swiss National Bank (SNB) back in September. The cross rate this morning is 1.2057… We’re beginning to get to the cheese that binds for the SNB, folks. And with the franc rallying back to the 1.10 handle versus the dollar, it’s going to get very interesting to see what the SNB has up their sleeves… Whatever it is, it will be harsh toward the franc, as the SNB wants a weaker franc… I would be very careful here… Yes, the franc is rallying again, but remember how quickly the rug was pulled from underneath it last September… It could happen again!

So yesterday afternoon, I was reading my MarketWatch midday report, and one of the headlines read, “Gold Backs Away From Recent Highs.” I turned and said to Tim Smith, “See what happens when you put something down in writing about market assets?” I said that because while I was reading that headline, gold had mounted a rally and was up $12.50 on the day, only to end the day up $20…

I find myself kicking the trash can all the time when I see an asset moving in one direction in the morning, only to have it reversed, Shoot Rudy, sometimes before I get to the end of the letter! But I carry on despite my shortcomings….

OK, onward and upward… The Aussie dollar (AUD), while rallying this morning, is seeing the move tempered a bit by the political moves last night. The Aussie finance minister, Rudd, quit his post, thus pushing Prime Minister Gillard to call for a ballot within her Labor Party’s caucus. She has the votes to continue, but the brief uncertainty didn’t play well with the A$ rally…

You know the saying about everyone having an opinion, right? Well, everyone has an opinion on China, and most of them have been wrong… here’s the latest… The World Bank and a Chinese think tank believe that China could face an economic crisis unless it implements deep reforms, urging China to scale back its vast state-owned enterprises and make them operate more like commercial firms.

Hmmm… Sure, that would probably work… but an economic crisis? I’m not buying it! Instead, I’ll stick to my call — over two years ago — that the Chinese economy would not collapse, but moderate. We’re still seeing signs of this moderation, with GDP growth expected to narrow to 7.5% this year from 8% last year and the 8% average from 2005 to 2011… China continues to shift the economy’s drivers to domestic demand, and that will bring about more moderation. But does it stop the Chinese from their slow, steady appreciation of the renminbi? I don’t think so…

Did you see that the ratings agency Fitch cut Greece’s credit rating yesterday from CCC to C, which was bad enough, but Fitch went on to say that “a default is highly likely in the near term.” Hmmm… I guess the bailout funds — which, along with the austerity measures, will bring Greece’s debt down from an unserviceable 160% of GDP to a barely serviceable 120% of GDP by 2020 — didn’t impress the folks at Fitch…

I say that sarcastically, which, if you know me and have read this letter a long time, you read into that, and I didn’t have to tell you, right?

Here’s the thing that gets me banging on the keyboard… by 2015, just three short years, the US debt will be around 140% of GDP. What’s Fitch going to say about that? Probably nothing! They are like the wannabe bully that picks on only kids they know can’t fight back…

I told you earlier in the letter that gold rallied about $20 yesterday. Apparently, the technical buyers were out in force, as they believed that gold had hit a technical indicator. Hmmm… I’ve got an idea for these guys… Just buy gold, and be happy… don’t wait for an “indicator,” because that indicator came long, long ago, when the US began building up debt, followed by the Europeans… I have a bumper sticker by my desk of my friend the Mogambo Guru, and the bumper sticker says, “What would Mogambo Guru buy?” and then the answer, “Gold, Silver, and Oil, moron.”

OK, I’m not calling anyone a moron… you have to know the Mogambo Guru… he’s not calling anyone a moron, either. He’s just saying that after all this debt accumulation, what else is there to buy?

I haven’t talked to the Mogambo Guru in a long time. I did receive an email from a JMR (Junior Mogambo Ranger) the other day. All this Mogambo talk has me queuing up an email to him!

Anyway, gold is trading at a three-month high this morning. Silver is, too, and oil? It’s trading above $106 this morning…

Speaking of silver… Did you see that India imported 5,000 metric tons of silver in 2012? They imported 4,800 metric tons of silver in 2010… Here’s the skinny, folks… As I’ve written about here for a couple of years now, gold in India is very important… And is very important when two people wed… and this has fueled the gold imports in India. But gold has gotten very expensive, and with the fledging middle class in India not having a lot of disposable income, they have turned to silver…

Silver, as I wrote in a magazine article a year ago, has become the new gold, with mom and pops able to buy lots of silver versus gold…

Then there was this… Since I’m talking about silver so much this morning… Silver guru Ted Butler recently wrote to his readers about the upcoming decision by the CFTC, in which they admit there has been manipulation in silver… Here’s Ted Butler:

“In the event that the CFTC does what is correct… and what is required of them to do by the rule of law, then you better own some silver. A sudden announcement that a US government agency found silver to have been manipulated to the downside would likely trigger off reactions from world silver producers, consumers and investors that are impossible to fully comprehend. Miners would be angry for having been cheated by artificially low prices. Industrial users and investors would rush to buy before others did so. This event alone could quickly spiral into the silver bubble I wrote about recently. The legal repercussions are also hard to fathom for a manipulation that lasted for many years. But the bottom line is that it would likely set off a buying wave never seen before. Please remember, this is a highly unique situation specific only to silver, as there is no gold or corn or crude oil investigation under way. Therefore, any price impact should be primarily confined to silver. This outcome is not the only reason to buy and hold silver, but it would be enough if it were the only one.”

Chuck again… You have to realize that a guy like Ted Butler (no relation that I know of, but with a last name like that, he must be one smart dude! HA!), has been called a loon by many people for what they called his “crazy conspiracy theories.” So to have the CFTC do the right thing would be a HUGE vindication for him. But the BIG item here is whether the CFTC does the right thing… In my opinion, they won’t go “all in” and will probably hedge their decision, so that no one knows for sure what just happened. That’s my experience with the CFTC…

To recap… German IFO business confidence hit a seven-month high this month, and this news has fueled a risk asset rally this morning. The euro traded to 1.3315, but since I’ve been writing this morning, has fallen back to below 1.33. The carry trade looks as if it’s making a comeback, but be aware that yen repatriation usually happens in March. And the A$’s rally is tempered as Gillard has called for a vote after the finance minister stepped down.

Chuck Butler
for The Daily Reckoning

German Business Confidence Hits Seven-Month High! 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.

For example, the federal government is about to dump millions of the foreclosed homes at fire-sale prices to hedge funds and private-equity firms with government connections. If you’re an individual investor who might like to get in on the action, forget it! You’re shut out of this deal.

Homeowners who might be interested in buying the foreclosure property next door? Out of luck. And retirees hoping for a return on their money more than 1.8% on a five-year CD find another avenue closed off.

Prior to the calamity of 2008, we might have thought the deal we’re profiling today unthinkable. But now we’re becoming as immune to new instances of blatant cronyism as American babies are to diphtheria.

If you’ve got the hammer for it, we may as well get down to brass tacks: As many as 10,000 properties might be unloaded in a single transaction during the first quarter of 2012 — thanks to a government program so new it doesn’t have a catchy name yet, only the working title “Enterprise/FHA REO Asset Disposition.”

Roger Arnold, chief economist for Pasadena, Calif.-based ALM Advisors, has a different name for it — “the largest transfer of wealth from the public to the private sector.”

As of last September, there were about 800,000 “real estate owned” or REO homes in the United States — homes repossessed and on the market. Close to one-third of these — 250,000 — sit on the books of Fannie Mae, Freddie Mac and the Federal Housing Administration. That is, 250,000 homes are owned by you and me, the US taxpayers.

But that number is about to explode: According to Ken Harney at the real estate industry publication Inman News, “The three agencies face a tsunami-sized shadow inventory that is now heading their way — a combined 1.4 million delinquent loans on their books, at least half of which, they estimate, will end up in foreclosure.”

So now we’re talking that 250,000 number suddenly ballooning to nearly a million. The early-warning waves of the tsunami started lapping at the shore in November, when foreclosure auctions reached a nine-month high. The final numbers might end up even higher: Late-stage delinquencies tallied by Lender Processing Services in January approach 2 million.

Thus, the hypothetical excuse for the fire sale: “Even with heroic efforts,” Harney says, “Fannie, Freddie and FHA won’t be able to handle that level of REO volume using their current systems of individual sales, directed at owner-occupants and small investors.”

Thus, “You and I will not be allowed to participate,” says Roger Arnold of the newprogram. “These [new] investors will come from the private-equity and fund community, Goldman Sachs and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.

“The US taxpayer will get pennies on the dollar for these homes, and then be allowed to rent them back at market rates.”

The groundwork is being laid right now. During the first week of January, the Federal Reserve issued a white paper on housing: “A government-facilitated REO-to-rental program,” it said, “has the potential to help the housing market and improve loss recoveries on REO portfolios.” Three Fed governors put the word out in speeches the same week.

The big boys can smell the money and they are lining up to play.

Among the players that expect to profit big from this government-sponsored scam are the private firms that already manage properties for the government. The Department of Housing and Urban Development calls them “management and marketing contractors.” Their principal owners and officers tend to consist of former high-ranking officials with HUD, the Treasury, FHA and so on.

There are 20 of these “M&M” firms, according to a list on HUD’s website. On the theory that perhaps you could reclaim some of your tax dollars by investing in these firms — the same theory with which we suggested ITA, the defense and aerospace ETF — we examined whether any of them are publicly traded. None are. Sorry.

No, the only way you’ll be able to make any money off these insider deals will come long after the feast is over and you’re allowed a few crumbs. “Once the privatization has occurred,” one analyst observes, “and the properties are generating rental income for the investors, the initial investors will cash out by forming real estate investment trusts (REITs), real estate operating companies (REOCs) or limited partnerships that will be made available to retail investors.”

Alas, by then, the easy money will have been made…at your expense. Feels pretty good, doesn’t it?

That’s why, increasingly we find ourselves casting our gaze overseas, longing for returns in foreign lands in places where the governments are somewhat less corrupt and the playing field slopes somewhat less directly toward the pockets of crony-capitalists.

Regards,

Addison Wiggin,
for The Daily Reckoning

Uncle Sam’s Fire Sale. Minimum Investment: $1 Billion 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.

$40 trillion left to go!

Hey, don’t hold us to those figures. But yesterday European sages cut another deal to stave off the truth. Instead of defaulting openly and honestly — as Greece has done over and over again ever since 1827 — the Greeks will be ‘rescued.’

Sayeth Lucas Papademos, the technocrat leading Greece through its vale of deceit:

“It’s no exaggeration to say that today is a historic day for the Greek economy.”

He’s right. It’s no exaggeration. It’s an outright lie!

What’s historic about the 15th rescue?

And as soon as the Greeks are fished out of the water, they’re to be given a shave and a haircut. No kidding. They’re supposed to shave off more public employees, more spending, and more benefits.

Already, one of 5 people is out of a job…with 2 out of 5 unemployed among young people. In November alone, 126,000 Greeks lost their jobs — the equivalent of 3.5 million job losses in the US, in a single month.

But the Greeks aren’t the only ones who are suffering. Their creditors are supposed to suffer a $100 billion haircut, too. Sounds like a default to us.

And what’s important about Greece’s 6th major default on its foreign debt? It defaulted for the first time in 1827. Since then, it’s made a habit of it.

The important thing, from our point of view, is that the Europeans are de-leveraging…getting rid of debt — at least a little, around the periphery of Europe.

Trouble is, there’s a whole lot more. And the level of debt, generally, is still increasing — thanks to the very same officials who just cut the latest Greek deal.

Here is where the numbers get a little unreliable. No, heck, they’re totally unreliable. But at least they give us a sense of the scale of the problem.

If you have debt equal to 100% of your income you can probably handle it. If the interest rate is 5%, you devote one twentieth of your revenue to debt service.

But if your debt goes to 200% of your income, the burden of the past begins to weigh on the future. You have to cut spending and investing, because so much of your income must be used to pay for things that have already been produced and consumed. Growth slows. The economy groans.

At 5% interest, you’d have to devote a full 10% of your income just to pay the interest. At 10%, you’re in real trouble…with one of every 5 dollars already spoken for, even before you get it.

The world produces about $50 trillion worth of output per year. Some countries — usually poor ones — have very little debt, for the simple reason that no one would lend them money. Others — such as the UK and the Netherlands — have total debt burdens over 500% of GDP. (Much of it is mortgage debt, which is a special case…since it may be considered an on-going expense, a substitute for rent.)

Even at 200% of GDP, debt doesn’t have to be a permanent and irreducible drag. If the economy grows faster than the debt, the burden becomes lighter over time. That is what happened in the US, for example, after WWII…and again, during the Clinton years.

The problem now — grosso modo — is that the growth is in the countries with little debt…and the debt is in the countries with little growth. In the US, for example, debt increases two to three times faster than GDP.

Most of the developed world is not so different from Greece. Some have more debt. Some have less. Overall, they have government debt equal to 100% of GDP. Household debt adds another 200% of GDP…or more; the typical developed country has total debt somewhere around 300% of GDP.

Total GDP is about $40 trillion. So in order to get total debt even down to 2 times GDP they need to wipe out $40 trillion of debt.

A long way to go…a tough row to hoe…

Austerity comes to the USA?

Not exactly. But The Wall Street Journal reports that taxes are set to go up:

First, the top marginal personal tax rate rises to 39.6% from 35% as the Bush tax cuts expire at the end of 2012.

Second, a limit on itemized deductions will add a further 1.2 percentage points to the top rate.

Third, a new 0.9% Medicare tax on incomes over $200,000 gets imposed ($250,000 for joint filers).

Fourth, the top 15% rate on long-term capital gains rises to 20%.

Fifth, dividends will once again be taxed at ordinary rates — 39.6% for the top income earners.

Sixth, a new 3.8% tax on investment income gets introduced for incomes over $200,000 ($250,000 for joint filers).

Seventh, the top estate tax rate goes from 35% to 55% (60% in some cases).

The estate tax exemption falls to $1 million from $5 million (the gift-tax exemption also drops to $1 million and the rate adjusts hither to 55%).

Unless action is taken, these tax increases will take some of the metal out of America’s already-anemic ‘recovery.’

And here’s something else that’s blocking the path to genuine recovery: Young people no longer start off in life with a clean slate. They’re heavily burdened with debt. They can’t spend. They can’t buy.

Bloomberg reports:

As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said.

“Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” Federal Reserve Chairman Ben S. Bernanke said at a homebuilders conference last week. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”

The Fed’s white paper said 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011, compared with 17 percent 10 years earlier. “These data suggest a large decline in mortgage borrowing by potential first-time homebuyers due to not only weaker housing demand, but also the effect of tighter credit conditions,” the Fed said.

Outstanding education debt surpassed credit-card debt last year for the first time, according to Mark Kantrowitz, publisher of FinAid.org, a student loan website. Recent college graduates carry an average debt load of more [than] $25,000 each, which can limit their ability to qualify for mortgages even if they’re fortunate enough to land a job in a market with an unemployment rate of 9 percent for 25 to 34 year-olds.

Calling it a “student-loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys warned Feb. 7 about the effects of rising student debt on recent graduates, parents who cosigned their loans and older Americans who have gone back to school for job training.

“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.

Normally, the housing ‘escalator’ works like this. Young people buy starter houses from older people. The older people move up to the family homes, buying the houses of people who are selling out so they can buy retirement houses. If the starter houses aren’t bought, the escalator stops. Young people can’t buy; so, older people can’t sell.

The other part of the story — not widely reported — is the enslavement of the young to the old. In effect, instead of families paying for their children’s education, they force the children to borrow the money from the government. Then, paying it back, the money is recycled to old people — through Social Security, Medicare, and so forth. Meanwhile, the government borrows trillions more to fund their giveaway programs. In the US, the total is over $15 trillion and rising — most of it destined to pay benefits for people over the age of 50.

And guess who’s supposed to pay for all this debt? The young, of course!

How long before they revolt?

Regards,

Bill Bonner
for The Daily Reckoning

Opposing Trends in Debt and GDP 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.

But that appears to be over, giving credence that the only reason yen was so strong for so long was that it was still considered to be a “safe haven” currency. Well, with the latest agreement in the eurozone, I’m sure a lot of those “safe haven” trades into yen are being unwound, from the looks of it, I should say. So for the first time since July of last year, yen is trading with an 80 handle…

The euro (EUR) remains above 1.32 this morning… but has found the waters quite rough as it attempts a run at 1.33, and just like a couple of weeks ago, when we saw the euro bounce around 1.32-1.33 and never really climb past 1.33, the markets will grow tired of this trade, and soon the euro will begin to slide again. That is, unless it can get some strong legs and move past 1.33. Personally, I would be happy to see the euro remain around 1.32, for now, and see where the baby steps of stabilization for the eurozone go from here…

In the 1980s here in St. Louis, the world-famous rock radio station, KSHE, used to run a TV ad that had a father break into air guitar when the Stones’ song “Brown Sugar” would come on, and the daughter would get all freaked out and say, “Mom… he’s doing it again.”

Well, I told you all that to set up… “Pfennig readers, China’s doing it again.” China announced last night that they had signed a new member to their club of countries that have currency swap agreements to remove dollars from the terms of trade. This time, China signed an agreement with Turkey. Yes, China is being coy with these smaller — in terms of world trade — countries, but that’s how they are going to spread their wings, and gain a wider distribution of their currency. And again, I sit here and tell you, dear reader, that China has plans to remove the dollar as the reserve currency of the world.

And maybe it won’t be the renminbi (CNY) that takes over… maybe the so-called reserve currency is a basket of major currencies. The point here, and I can’t emphasize this enough, is that to have the reserve currency title stripped from the dollar would be devastating to our economy… To you, me, our kids, our grandkids… Think about this, dear reader… after World War II, the pound sterling (GBP) could no longer be the reserve currency of the world. Because of the debts the U.K. built fighting the war, the U.S. became the financier of the world, and was the only country that had the ability to act as “settlement banks” and use dollars in the terms of trade…

Then gloom, despair and agony fell on the U.K. economy. So this is what the Chinese have in mind for us… and why are they doing this? They believe that the U.S. has broken their promise to the world to keep the dollar strong, which they can no longer do, given the debts, deficits, economy, scandals, unfunded liabilities and on and on…

OK, I’ve got to go on, because this is really depressing me this morning!

This morning, the euro was dealt a bit of a blow by a worse-than-expected manufacturing index report for this month… remember, these manufacturing index reports are called “PMI.” So the eurozone PMI came in at less than 50, at 49.7. In addition, remember that any number below 50 represents contraction of the manufacturing sector. I find this report to be interesting, given that there appears to be a strong economy in Germany. But even with Germany representing the largest economy of the eurozone, there are many more countries in the eurozone that are not experiencing economic strength.

In the U.K., the latest Bank of England (BOE) meeting minutes showed that two members voted for additional bond purchases greater than what was implemented. I’m surprised at how the markets slammed the pound after the printing of this report… Silly markets… fickle markets… It’s just two votes… But the real point here is that we have to keep our eye on the ball, as I’ve explained several times over the past few years, and that is that what happens in the U.K. ends up on our shores about six months later… The BOE implemented another round of QE last month, so the clock has started…

The Aussie dollar (AUD) is still gasping for air, after having the wind knocked out of it by the RBA meeting minutes… We talked about this yesterday, but for those that missed class yesterday, the RBA added some wording in their latest meeting minutes that surprised the markets. The RBA kept their foot in the door of more rate cuts. Of course, they didn’t say they would cut rates, they simply said they “had the scope to do so, should the economy weaken”…

So as I said yesterday, we saw this same type of trading after a RBA rumor about three months ago, and it took the A$ a few days to get its wind back. I think it may get its wind back when the markets get a drift of the latest Wage Cost Index for the fourth quarter, which printed stronger than expected!

As I look at the currency screens this morning, most of the currencies are moving in the wrong direction, but not by much, just an underlying bias to buy dollars this morning. And gold, which had a very strong performance yesterday, is off about $5 this morning, as it appears some profit taking has taken over.

The price of oil didn’t take a step back, though. The oil price is up another $1, to $105, and knocking on the door to $106… I stopped to fill up my gas tank this morning… and much as the way groceries, restaurants and so on are doing… I got less and paid the same… This way, most of us don’t really feel the inflation all around us, but it’s there… trust me. No wage inflation or home inflation, but everything else that touches our lives… and as long as everything else around us is going up in price or going down in the quantity at the same price (it’s the same thing), it would be OK to see some wage inflation, eh?

China also printed a weaker manufacturing index (PMI). The preliminary report from HSBC Holdings shows that China’s PMI was 49.7, again below 50. This is all a part of the “moderation” of the Chinese economy, folks… nothing to be really concerned about yet, so move along, these are not the droids you are looking for…

Well, it looks as if the U.S. isn’t the only country that didn’t experience a grand Christmas shopping season. Retail Sales in Canada too, came in much weaker than previous months… December Retail sales for Canada slipped 0.2%, following increases of 0.4% in November and 0.8% in October! So maybe everyone shopped early? December was the first drop in five months for Canada, and a look under the hood (pun intended) showed that motor vehicles were to blame for the drop. So let’s not write the Canadian economy off just yet…

One European currency, the krone, (NOK) that’s bucking the trend of following the euro today, and in my opinion, it’s about darn time! The Norwegian krone is rallying nicely this morning. You might recall me bemoaning the fact that the krone was following the euro, even though Norway had sterling fundamentals and should be held to a different standard. Well, maybe that’s happening, finally! The krone is the best-performing major currency this month!

After cutting rates in December, the Norwegian central bank, the Norges Bank, might just be sitting on its hands going forward, as speculation of another rate cut fades… All this fading speculation is really pushing the krone… I wonder how long this will last? Does it have legs? Is it on terra firma? I guess we’ll have to wait and see, but in my opinion, it should be OK! Of course, just because I say that, I need to make sure you understand that it’s just my opinion, and I could be wrong!

I saw a cartoon on Ed Steer’s excellent morning Gold & Silver Daily this morning… It shows the president holding a dollar bill that’s on fire, and he says, “Look, Green Energy!” If it weren’t so true, it might be funny, eh?

Not much in the way of data from the data cupboard this morning here in the U.S., just existing home sales for January… The thing to look for here is not the homes sold, but at what price? Did the median price decline as it has for a couple of years now? That’s what to look for…

Then there was this from The Economist:

“The European Union has lower government debt levels than America. Gross government debt in the 27 nations of the EU was 80% of the region’s GDP at the end of 2010; in America, gross federal debt at the end of 2010 was 94% of GDP. Furthermore, government debt is growing more slowly as a percentage of GDP in the EU than in America, because pretty much every nation in the EU is implementing austerity measures. The general government deficit in the EU-27 in 2010 was 6.6% of GDP. In America, the federal deficit in 2010 was 9% of GDP.”

I tell you this not as a “hey, they’re better than us” type of thing. This article caught my eye, because we’re going to hear over and over again during the election campaign that we are “becoming Europe” because of the debt. But if that were true, then we as a country would be cutting deficit spending, and implementing austerity measures… watch out for that!

To recap… Yen finally surrenders to intervention and reduction of safe-haven flows. China signs another member to their currency swap club. Oil climbs further. Gold has strong performance yesterday followed by some profit taking today. The A$ is still searching for some wind, after having it knocked out of it by the RBA minutes on Monday, and maybe, just maybe, Norway is breaking the trend to follow the euro…

Chuck Butler
for The Daily Reckoning

Yen Weakens to 80! 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.

According to the Japan Robotics Association, the consumer robotics market is projected to reach 24 billion this year, and balloon to 66 billion by 2025. I personally think that the long term estimate is a bit pessimistic. Bill Gates is on record for predicting that robots will be as common as computers are today.

If he is even half right, investors that get in on promising techs today will be fantastically compensated for their vision and patience in the long run. Getting in on the next wave of robotics now will be like getting in on Intel, AMD, Apple, and Microsoft in the 1980s.

Of course, the Great Recession has dealt a few temporary blows. A mainstay of the robotics industry has been assembly line machines for the automobile manufacturers. But the robotics industry is diversifying, and the automotive industry itself gives a good example of what can happen.

While automobile sales plummeted during the Great Depression, crucial improvements in automotive technology like the fully automatic fluid transmissions and hydraulic brakes were being made that would revolutionize motoring once it was all over. Once that storm passed profits and sales went up, along with share prices.

Robots are already being used for dangerous jobs that humans would rather not do. The US Commerce Department decided to fund a project with Fibrwrap Construction Inc. to develop robots that will be able to repair aging water transmission pipelines from the inside. The advantage of this method is that the infrastructure won’t have to be torn out of the ground to be repaired. But the robotics market is rapidly spreading beyond these types of dangerous applications…

Robotics is being aided by a simple economic fact: while cost of production for goods has generally declined over time, prices for services generally don’t fall quite as much. Consider that your computer costs a fraction for the performance you receive compared to two decades ago, but the technician that repairs it has generally remained quite expensive to hire.

Food prices, to give another example, have fallen steeply in real terms over the last century. This is not only due to better agricultural techniques, but also because of increased automation. From John Deere and Alice-Chalmers, from the balers to combines, mechanized agricultural equipment has drastically reduced what we have to pay to consume our daily bread. Robotics will be no different, and we are on the cusp of big changes.

In our day and age, the healthcare service industry has proven highly resistant to price declines partly because of labor costs. Improved robotic automation is one of the fastest ways to increase productivity and reduce labor costs. With the leading edge of the Boomer generation entering retirement, there will be huge financial incentives for improved robots. There will be tremendous demand for anyone that can build an affordable robot that can help with housekeeping and basic care.

Families that want to keep older members out of assisted care facilities and closer to home will look to robots for help.

I spoke with Martin Spencer, President of GeckoSystems International Corp. regarding his vision for robot assisted health care. Having spent over a decade working on his dream of a personal care robot, his company has developed unique technology that is starting to demonstrate its usefulness in marketable models.

According to Spencer, the hardest problems related to robotics in this role are software and AI related, not hardware related.

Their flagship robot, called CareBot, has advanced modular artificial intelligence and a proprietary compounded sensor system that allows it to reliably move about the typical home landscape. Unlike other robot designs that seek to reduce sensor inputs to cut down on processing overhead, GeckoSystems’ CareBot is sensor loving. This property is necessary if a viable multipurpose self-directed robot is to become successful. The main reason is because multiple inputs help to give the robot a better reading on its environment. For example, when you are driving a car, you not only receive inputs through your vision, but also through the sensing of acceleration or deceleration, engine vibration, a honk from a nearby car, or the bump of a collision. Being able to use multiple sensor feeds is particularly important in a robot that needs to move about the home on its own.

The CareBot also has an AI module that is designed for human/robot interactions.

This module, called GeckoChat, can respond to voice requests, create voice reminders, and even engage in word games with a human being. The beauty of GeckoSystems’ AI platform is that it can run on common PC hardware and operating systems like Windows XP and Linux, keeping down costs. Spencer estimates that the CareBot can pay for itself in a matter of months, due to the high cost of assisted care.

Along with my colleague Patrick Cox, I am closely investigating advancements such as CareBot, along with other opportunities in this space. These life-changing technologies will become commercialized sooner than you may think.

Regards,

Ray Blanco,
for The Daily Reckoning

Robotics and Health Care: A New Growth Market 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.