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Tuesday, April 7, 2009 A light at the end of the tunnel? Not likely... More stimulus for the Japanese... This rally is just a trap for the unwary... Even sports stars are taking pay cuts... Jeff Clark on when gold is taking off...and more! A Sucker's Rally by Bill Bonner Los Angeles, California Keep moving up those stop losses! The Dow took a breather yesterday. The index was down 41 points. But as far as we can tell, the rally is still underway. The G20 meeting is widely seen as a triumph. The money is flowing. People think we've seen the bottom. "Cramer: The Depression is over," says a headline. Jim Cramer says the bottom has come and gone. That's all we need to know. If Cramer thinks the worst is over...well, it must be so. Even Nouriel Roubini, according to Forbes, thinks there is "light at the end of the tunnel." Japan says it's going to announce another $100 billion stimulus program this week. That should do the trick. After 17 years of bailouts and stimulus programs, the Japanese should be getting good at them. But it's a little like a guy who's getting good at suicide - if he's so good at it, you'd think he'd be dead by now. But no...the Japanese economy is still one of the worst performers in the world; their bailouts and stimuli have done no good...maybe they've even made the situation worse. No matter, there's a rally on...this is not the time to ask questions. Our instinct tells us this rally is going to carry the Dow back above 9,000...possibly above 10,000. Why? Because people do not go directly from believing nothing can go wrong to believing that nothing can go right. The kind of delusional optimism that took stocks up to 14,000 on the Dow...and doubled property prices...and had sober bankers buying billions' worth of ticking debt bombs doesn't disappear overnight. It has to be killed like Rasputin - many times. Stab it. Shoot it. And then douse it with gasoline and set it on fire. Maybe then, it will finally die. That's why this rally is just a trap for the unwary...a suckers' rally. Investors are getting back on their feet just so Mr. Market can whack them again. So, if you're playing this rally...be sure to keep those stops moving up behind your stocks. So far, this rally has recovered less than 20% of the previous losses. Typically, at least one good rally in a bear market will recover more than half of the losses. Looking at the long term, the Dow rose from the low in the early '30s of only 41 points to the high in 2007, when it was over 14,000 points. This bear market wiped out more than half of the capital gains made by investors during that whole 76-year period. A 50% bounce from the January low would put the Dow back up close to 10,000. But we gave you our forecast yesterday. Bulls, bears, spenders, savers - our guess is that Mr. Market intends to paddle them all. The bulls will be whacked when the Dow falls another 50% from its low - down to, say, below 4,000. The bears will be whacked when the Fed seems unable to stop deflation...and the prices in the mining and commodities sectors collapse. Then, the spenders will be trapped in a burning house of debt - with the door barred by deflation. Later, the roof will fall on the savers too - when the feds finally manage to get an inflation backfire going. The fire will get away from them immediately, we predict, burning up trillions worth of savings overnight. But let's go back to the cheerful tidings out in the press. Sallie Mae says it is ADDING 2,000 jobs. But wait...2,000 jobs isn't really very many. And who are they employing? Debt collectors? "Consumers fall behind on loans at record rate," says a headline in USA Today. "A record number of consumers are falling delinquent or into default on their loans, a problem that some economists say will only get worse this year. "A record 4.2% of consumer loans were delinquent at least 30 days in the fourth quarter, the latest data available, according to the Federal Reserve. Another 4% of consumer loans were in default, meaning they'd been written off by lenders. "Recent data from the American Bankers Association and Moody's rating agency show the same sobering trend: More consumers are paying late - or not at all - on home, car and credit card loans. "Job losses are closely correlated to loan defaults, economists say. And as more people become unemployed, they're increasingly giving up on loan payments." Even sports stars are taking pay cuts. The "incredible shrinking payroll," USA Today calls it. Nearly half the baseball teams in the major leagues have cut their salary costs...by more than $10 million each. The San Diego Padres, for example, took $20 million off their payroll expense. "The wheels have fallen off the economy," says James Chessen, chief economist for the American Bankers Association. "There have been significant job losses, and that translates into people having a hard time paying their bills." Employers cut 663,000 jobs last month. That puts the official unemployment rate at 8.5%. It will probably be 10% by the end of the year. Since December 2007, 5.1 million people have lost their jobs, more than 2 million of them this year alone. But "the worst is likely yet to come," continues USA Today. "Chessen expects consumer loan charge-offs and delinquencies to continue rising through the end of this year." Move up those trailing stops, dear reader. More news from Addison and The 5 in Baltimore: Crude oil traded down this morning along with stocks," writes Addison in today's issue of The 5 Min. Forecast, "thus, a new trend emerges in 2009:" "In 2008, the oil trade was all about the demise of the dollar and the threat of global energy scarcity. Whether that was a legit trade or not (we think it was and will be again soon), you can't deny crude left stocks in the dust for most of last year. "This year oil is no longer following the '08 paradigm. Crude has become a 'reflation' trade; any time the world seems less doomed, up ticks the price of black goo...right alongside the Dow. Expect the trend to continue until further notice. "A barrel of crude goes for $49 today." Each weekday, the executive series e-letter The 5 Min Forecast provides a quick and dirty analysis of daily economic and financial developments - in five minutes or less. The 5 is free to subscribers of our paid publications, such as the Hulbert #1 Performing Investment Letter, Outstanding Investments. One last note: The 5 will be taking a break for the rest of the week...but never fear, Addison will be back on Monday. And more thoughts, courtesy of our new friend, Dr. Janice Dorn, describing Saturday night's tribute to Richard Russell: "Richard did not speak for long, but when he did he talked about living through the depression and what he remembered: "He saw Babe Ruth hit a home run. "He watched Joe Lewis box in 1937 and 1938. "He saw breadlines all over New York. New Fords were selling for $450 and Democrats were right outside of the Ford store handing out food. "With a nickel, you could go from NYC to Coney Island. "The automats were HUGE hangouts because for ten cents you could buy something to eat and sit there all day. People would buy some hot water and put ketchup in it to make tomato soup. "He paid 75 cents to watch a very young Frank Sinatra perform with Tommy Dorsey. "He said that, during the depression, a person could not get a job, no matter what. There were no jobs. "Richard believes that we have not seen the bottom of this bear market. Sentiment turned bullish too quickly and appears to be [offering investors] the 'pause that refreshes to get everyone bullish again' before the downage resumes in earnest. "The more I think about it, the more interesting it becomes that sentiment has turned bullish so quickly. When bear markets really bottom, sentiment is so negative that it really feels like the blood is not only in the streets, but that we are hemorrhaging from every orifice with nary a tourniquet in sight. That hasn't happened yet." *** What are we doing in L.A.? We drove up from San Diego on Sunday and are now visiting daughter Maria, who is trying to break into the motion pictures. "Dad, it's not easy. When I first got here, it seemed like this would be so easy. Everyone was so nice and friendly. And I don't mean they aren't still nice and friendly, but the town is tougher than it looks. There must be thousands of girls just like me...working as waitresses and legal secretaries...but hoping to get into acting. I've probably had better training than most of them, but that doesn't seem to matter. I got a good agent. At least, I thought she was good. And when I get to go for a tryout I work hard to do a good job. But it doesn't seem to be working. Honestly, I don't know how people do it." Maria seems to be doing all the right things. She is serious. She is determined. But the acting business is a hard way to earn a living. In the meantime, she has asked dad for a subsidy. Which might raise a question; if a subsidy for GM and Wall Street is a bad idea...why is a subsidy for Maria a good idea? Glad you asked. The way we see it, giving money to Maria is both an investment and a consumer item. We give her money because that is why we bothered to earn it in the first place - so we could help the family when they need help. It is almost a consumer item in that respect - since it gives us pleasure to be able to help her. And there are certain careers that require more investment than others. We have a son who wants to go to medical school. He is just finishing his first year of college, so we can anticipate huge investments over the next 7 years. Why not invest in Maria's career as an actress too? Maybe it will pay off; maybe it won't. There's nothing wrong with investing in Detroit either. If anyone believes investing in Detroit is a good idea - let him go forth and good luck to him. Who knows? Maybe an investment in Detroit is a good one. Each man takes his chances and his losses. There may also be people who want to give money to Detroit for other reasons - national pride or nostalgia, for example. If they want to do so with their own money, well again, bully for them. We wish them well. But a government bailout is a different thing. The feds take money from people who DON'T want to invest in GM...or Citi...or AIG (if they had wanted to invest, the companies wouldn't need the government's money) and give it to the companies. By definition, unwilling investors are getting something they neither want nor deserve. And the more bailouts and stimuli the government enacts, the more they take people where they don't really want to go. Until tomorrow, Bill Bonner for The Daily Reckoning P.S. Where is this money for the bailouts coming from? Directly out of your pocket, dear reader...and from every other U.S. taxpayer. After all, as former Treasury Secretary Paul O'Neill points out in our award- winning documentary, I.O.U.S.A.: "The federal government doesn't have any money that it doesn't first take away from the people." Bottom line: the bailouts are a sham. If you want the real answers of how America got here, where we are headed, and most importantly, how you can protect yourself and your assets, you'll want to check out our "Emergency Bailout Bundle." Keep reading for the details. --------------------- Special Offer --------------------------- 7 Steps that Could Turn $200 into $1 Million You don't have to be a stock market genius to rake in major profits. Even if you've never owned a stock before, this strategy will allow you to earn money the way wealthy insiders do. This system makes it easy...it even tells you when to buy and sell. Get all the information here. --------------------------------------------------------------- The Daily Reckoning PRESENTS: With the massive amounts of U.S. dollars being dumped into bailouts and the printing presses working overtime, it's hard to believe that the price of gold isn't sitting higher than it is right now. But Casey Research's Jeff Clark isn't worried...in fact, he's certain the price of the yellow metal still has quite a ways to go. Read on... How Long Will We Have to Wait? by Jeff Clark Rockland, California You are traveling through a desert in search of a famed oasis and its promise of riches, rest, and drink. But your journey has grown long, you are weary, and you begin to doubt the oasis really awaits you. But then signs appear from those who have gone before you that your course is true, and the reward you seek in fact lies ahead. Your spirit is renewed and you press on. Does this describe your journey with gold? Although gold's had a good run, rising from a monthly average of $760.86/oz in November 2008 to $943.16/oz in February 2009, when will it take off? That's still going to happen, right? Wimpy, Popeye's burger-loving pal, was always looking to get what he wanted today with a promise to pay tomorrow. Sound familiar? In their thrashing attempts to get their economies going again, governments around the world have pounded interest rates into the floor and flooded their banking systems with liquidity. Take a look at the monetary actions from the G7: Interest rates are at historic lows, an artifact of the robust, worldwide efforts to debase currencies. M2, one measure of money supply, is up in all G7 countries, which signals that tomorrow's inflation is being baked in the cake today. Further, bailout numero dos, with a rich pork filling, has been signed, sealed, and is about to be delivered, including an endowment for a "bad bank" that will buy up the loans that troubled commercial banks would like to deny they ever made. In addition, it guarantees hundreds of billions of dollars in bank assets - all on top of bailout numero uno. And don't forget the estimated $493 billion the Treasury Department will have borrowed by the end of the first quarter 2008; that on top of $569 billion the government borrowed in Q408, an unprecedented amount for any quarter, ever. The word "unprecedented" seems too weak to convey just how much money is being printed and/or borrowed to buy off the recession. So, when will all this money start showing up as higher prices at the supermarket and shopping mall? And when will gold react to this bumper crop of paper? The historical record indicates that a surge in money growth has its peak effect on economic activity about 9 to 18 months later. Add another 12 months or so for the peak effect on consumer price inflation. In other words, the Federal Reserve is always driving with a loose steering wheel. Most of the experience behind those numbers is with relatively tame ups and downs in the business cycle - not the kind of financial violence we've been seeing lately - which adds another variable. And on top of that, the numbers are about peak effect, not initial effect. So the timing remains uncertain. But what we do know is that there are clear and unavoidable consequences to wildly energetic money creation, including, sooner or later, rampant price inflation. "The word 'unprecedented' seems too weak to convey just how much money is being printed and/or borrowed to buy off the recession. So, when will all this money start showing up as higher prices at the supermarket and shopping mall? And when will gold react to this bumper crop of paper?" We're beginning to see interest in gold from the mainstream, which is encouraging. And enthusiasm from the general investing public will be what ultimately sends gold to the moon. Here's what we've observed over the past 30 days: 1. A number of mainstream economists and fund managers are openly expressing interest in gold. "The government can print endless money, but they cannot increase the supply of gold," said Michael Pento, chief economist at Delta Global Advisors Inc. "Anything the government cannot replicate by decree, I want to own." The firm, with $1.5 billion in assets, is doubling its gold holdings to 8%. We saw very little of this six months ago. 2. The mining industry has recovered its ability to raise capital. Take a look at the recent financings for some gold companies: Newmont $1.2 billion Newcrest $476 million Kinross Gold $414 million Agnico-Eagle $290 million Red Back Mining $150 million Compare this to the financial woes we hear continually about banks, brokerages, and government agencies. The only capital they can attract is government handouts. 3. While there are much better ways to turn gold into cash, Cash4Gold (who advertised during the Super Bowl) and similar businesses bombarding the airwaves with their pitches have sensitized the public to the topic of gold. Expect the interest in the yellow metal - and its price - to increase in a serious way. 4. January's Cambridge House Investment Conference in Vancouver was well attended, with the second day setting a record. Every session was packed, standing-room-only for most speakers, including Casey Research's Louis James and Marin Katusa. While no one was emphatic about the timing, most speakers agreed that at some point gold will be sought as a safe haven by the masses, who will catapult the price to new highs. Here is a quote from John Embry, chief investment strategist, Sprott Asset Management: "The average retail investor has little or no investment in gold and no understanding of how important it will be. The year 2009 will be volatile, but volatility is a small price to pay for where gold is headed. An explosion in gold and silver is inevitable in the years to come." The overriding theme was clear: Gold is going up. Period. It may or may not happen as quickly as you want, but the recent range trading hasn't defused its explosive potential. So when will gold take off? The signal won't be inflows to ETFs (although they are indicators), or jewelry sales (the '70s bull market had nothing to do with bracelets), or even sales of physical bullion (we had that in '08 and gold was up 5.5%, hardly meteoric). No, the payday rise in gold will occur when there is a significant shift in the psychology of the general public. And whether the glory days are just months from now or a year or two away, it's clear that the oasis is real and lies ahead. Is your cup ready? Regards, Jeff Clark for The Daily Reckoning P.S. Don't miss the gold boom... there's still time to buy some before the broader masses sweep in and the gold price goes to the moon. We currently recommend to our subscribers to put up to 33% of their investment portfolio into physical gold. But there's another crisis- proof, gold-related investment that can give you up to four times the returns of gold itself. Click here to learn more. Editor's Note: Jeff Clark is editor and one of the primary writers of Casey Research's BIG GOLD. Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making BIG GOLD a top-notch precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn't escape coverage. --------------------- Special Offer --------------------------- Your "30-Day Retirement Plan" One month and three "Flash Action" market moves could be... Your Chance to Turn $500 into $14 Million. It's happened before. It could happen again - starting as early as next week... So will it happen to you? Read on here to find out.   The Daily Reckoning - Special Reports: Investing in Gold: The 5 Best Ways to Invest in Gold Fiat Currency: Using the Past to See into the Future Introducing the Single Best Way to Make Sure You'll Never Run Out of Money... Click to Learn More About Mobs, Messiahs and Markets.