Saturday, September 12, 2009

Do We See a Golden Lining? - The Daily Reckoning Weekend Edition

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The Weekend Edition - September 12-13, 2009

  • Gold futures surpass $1,000 an ounce this week...
  • The Mogambo on how to use your clunker to its full potential...
  • Jim Nelson with 4 ways to protect against a falling dollar...
  • Rob Parenteau suggests a new name for the recent holiday...
  • Chris Mayer on the effects of this epic stimulus...
  • Bill Bonner takes a look at the Fed's fake recovery...and more!

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    The Daily Reckoning's Highlight of the Week:
    Do We See a Golden Lining?
    Baltimore, Maryland

    The big news this week: after teetering on and around this level all week, gold futures went above $1,000 an ounce on Friday morning. What drove the boost? Well, the falling dollar, of course. The green back fell against the euro to a fresh one-year low...and investors turned, as the always do, to the yellow metal as a hedge.

    This year, as the worldwide deficit spending eats away at currencies relative to gold and commodities, gold has risen 14%...while the Dollar Index has shed 5.6%.

    No doubt the dollar will keep in this free-fall as the Feds chip away at it, but is this run-up in gold prices sustainable for the short- term? Probably not, we will most likely see a correction. But in the long-term...those who are holding gold should end up pleased.

    In the Highlight of the Week, Bill Bonner looks at commodity prices and wonders why they aren't following the normal protocol for a depression.

    ...if it's a depression, how come commodities are up? And stocks are up? Above all, how come Chinese stocks are up? Everybody knows China earns its money selling products to Americans and other non-Chinese. If the rest of the world is in a depression, who is China going to sell to? How come China isn't in a depression already? But there you are - there's another thing that hasn't happened. Chinese stocks haven't collapsed.

    And getting back to commodities, they're all up. Commodity prices don't go up in a depression; everybody knows that. They go down. But commodities are NOT in a bear market. Go figure.

    And, of course, there's gold. The metal gave up a dollar on Friday, but it's still just $4 short of the $1,000 mark...and just a shadow below its all-time high. Gold is a commodity...but it's also money in its purest, more reliable form. Commodities go down in a depression. Money goes up. But since gold is an alternative to paper money, it tends to go up only when paper money goes down. As explained above, the dollar has NOT collapsed. So why is gold going up? It should be going down, reflecting the effect of a recession...

    There are two possible answers.

    First, maybe the iron laws of economics have been repealed.

    Or, second...maybe the iron laws just haven't caught up to the market - yet.

    [It's going to take longer than most realize for the market to recover...and who knows how many more billions in bailouts will be spent. However, due to a legal 'loophole' in the bailouts, you can collect 'bailout income' checks this year - and every year - until the US economy recovers. Your next check could be in the mail soon. Get the details here.]
    The above is just an excerpt from Bill's standout essay from this week. You can read it in its entirety on The Daily Reckoning site - it's an essay you don't want to miss. Get it here.

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    ALSO THIS WEEK in The Daily Reckoning: Don't worry if you were too busy grilling up some burgers and dogs on Labor Day and missed an issue of The Daily Reckoning...we have all of this week's issues catalogued for you, below...

    Evicted From Your Brand-New Clunker
    by The Mogambo Guru
    Tampa Bay, Florida

    "...since people can stop paying on their house but still live in it because the bank doesn't want to evict them, people will start living in their cars and stop paying on them, too!"

    4 Ways to Protect Against a Falling Dollar
    by Jim Nelson
    Baltimore, Maryland

    " wouldn't surprise us if the US' credit rating fell. That would cause an immediate panic in the currency markets and send the buying power of the dollar into a tailspin."

    Unlabor Day
    by Rob Parenteau
    San Francisco, California

    "As summer slips away into the flaming leaf show of fall, we conclude the labor market is still a mess, but we can find some broadening of hiring activity even though total payrolls are still contracting."

    The Effects of Epic Stimulus
    by Chris Mayer
    Gaithersburg, Maryland

    "These shifting patterns of trade always fascinate me. And we are living in an era of great change on that front, as new patterns emerge on a scale we have never seen."

    The Fed's Fake Recovery
    by Bill Bonner
    London, England

    "There are 500 basis points between zero and 5%. It would take a miracle for central bankers to find exactly the rate the market needs precisely when it needs it most."


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    Enjoy the rest of your weekend,

    Kate Incontrera
    The Daily Reckoning

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