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The Daily Reckoning Monday, October 5, 2009 We are living in a decaying financial world... If this recovery continues much longer, we'll all be unemployed... Gold continues to hold above the $1,000 an ounce mark... The Mogambo on the continued value of silver...and more! Welcome to Zombieland by Bill Bonner London, England Welcome to Zombieland...where the most amazing things happen... Starring Ben Bernanke, Tim Geithner and a cast of millions... The new movie - Zombieland - about a group of survivors in a world of zombies, was the biggest grossing film in America and Canada over the weekend. It must reflect the zeitgeist of the North American public...a deep feeling that we are living in a decaying world. Maybe it comes from the growing awareness that the old bubble economy of the 2002-2007 period is dead. Now, survivors must defend themselves from the zombies. Survivors are being attacked in the streets, in their homes, and at their workplaces. Zombie banks - kept alive by artificial stimulants provided by the feds - take their money and their houses. Living-dead companies block new competitors. And the zombies at the Fed and the Treasury department try to gnaw on their savings, encouraging inflation to eat away the purchasing power of the dollar. As to this last point, the feds have gotten nowhere. They wear down their teeth for nothing. Prices are going down, not up. Houses are 30% cheaper than they were in 2006. Hotel rooms are 20% cheaper than last year. You want a luxury room? Just ask for an upgrade. Chances are good that no one is renting the luxury suites. Just make them an offer. Discounts are available almost everywhere. The Sony Playstation, for example, is now available - 25% off. Stocks are cheaper too. They've been going up for the last seven months, but they're still about a third less than they were in 2007. Stocks fell again on Friday. Investors began to fret that maybe...just maybe...the authorities don't have this zombie problem under control. "Jobs news gets worse," The New York Times tells us. Since the stock market began going back up in March, the United States has lost 2.5 million jobs. It has lost jobs every month since December 2007. Now, unemployment - officially at one in ten workers - is the worst it has been in 26 years. What kind of recovery is this? We don't know, but if it continues much longer we'll all be unemployed. But not to worry, dear reader. Secretary of the Treasury Tim Geithner says the signs of recovery are "stronger" than expected. We wonder what signs he's looking at. Of course, this is the same doctor who was on the scene at the New York Fed when strange things began happening. The financial industry started acting funny in the bubble years...spending money like there was no tomorrow. And then, wouldn't you know it, there wasn't any tomorrow. They dropped dead in the crash of '07-'08. But with huge injections from the Fed, they've turned into Zombies. Of course, Tim Geithner missed the whole thing. So maybe he's not the best source of recovery sightings. A survey by Business Roundtable tells us that the ranks of the unemployed are likely to swell. Only 13% of employers have plans to hire more workers. The rest are either sitting tight...or turning workers loose. Naturally, of all those people cut off from paychecks, more than a few are looking a little peaked. Their eyes sink back in their heads. Their skin turns grey. Soon, they're starving for raw meat. "Personal bankruptcies soar," says The Wall Street Journal. And not surprisingly, when they become desperate, they tend to default on their mortgages. We know already that auto sales drove off a cliff when the summertime 'Cash for Clunkers' program came to an end. Now, summer's over. Housing sales should decline too - forcing more homeowners into default and foreclosure. [What is happening in the US right now is clearly NOT a recovery, despite what the Feds would have you believe. This is more than misleading information - the US government is actually ripping you off as we speak. Learn how to protect yourself with our financial defense strategy, found for free here.] More news, from The 5 Min. Forecast: "Stocks have hesitantly concluded their best quarter in over a decade," writes Ian Mathias in today's issue of The 5. "The Dow posted a 15% rise from July-September, its biggest quarterly jump since 1998. But lousy jobs and manufacturing reports helped push the blue chip index down 1.8% last week - its worst week of that same quarter. Heading into the official start of third quarter earnings announcements this week, hopes for the '2009 bull market' are fading. "Naturally, at the focus of renewed market pessimism is a struggling financial: CIT Group. The company - a hundred-year old staple of small/medium business lending - is no stranger to walking the credit tightrope. They narrowly averted fiscal meltdown late last year with $2.3 billion in TARP bucks... Then again in July by goosing bondholders with a $3 billion debt-to-equity deal. Back then we joked, 'look for this crisis to repeat in a couple weeks.' We were wrong... It took a couple months. "So with some historic irony, one year and two weeks after Lehman Brothers bit the dust, another debt burdened, credit reliant, potentially 'too big to fail' institution is looking to either stick its bondholders with a raw deal or enter sudden bankruptcy. We won't pretend to know exactly how this one will end, but the market has certainly voiced its opinion: "Heh, and of course Goldman Sachs has a horse in this race. They stand to make about a billion bucks if CIT goes into bankruptcy - the fruits of a smartly designed loan agreement. Hank Paulson, despite his GS pedigree, didn't make such a deal when he put $2.3 billion in TARP funds on the line... A CIT bankruptcy would mean a near total loss of taxpayer bailout loans. "CIT is one of the biggest lending sources for small and medium size business in America... What happens to the 'recovery' when this well runs dry?" You can get The 5 in your inbox 5 days a week, free of charge. It's one of the many perks that come along with being a subscriber to Agora Financial's paid publications, such as our newest service, BRIC by BRIC. Most of you know that BRIC stands for the world's fastest growing markets: Brazil, Russia, India and China. But what you don't know is that we have assembled four "go-teams" of in-country experts. People who know first-hand all the ins and outs of investing in Brazil, Russia, India, and China. And if you act by Wednesday, October 7 - just two days from now - you'll get a BRIC currency play that's guaranteed by the US government. But you have to act fast - this window of opportunity for this play is closes at midnight, Wednesday, October 7. Act now... And back to Bill, with more thoughts: The zombies are having a depressing effect everywhere. The stock market went down again on Friday...the Dow fell 21 points. The oil market didn't do much better, with the price of the black good still below $70. As for gold, the yellow metal continues to hold above $1,000. It fell below $1,0 00 for just a couple days. On Friday, it was back to $1,004. The $1,000 level used to be a ceiling for the gold price. Now it seems like a floor. Are the Chinese buying below $1,000? Maybe. Do we have a Beijing put option available to us? That is, has the risk been taken out of the gold market by China's desire to stock its vault with something other than dollars? It is an intriguing thought. We don't know the answer. We are holding onto our gold. It's insurance - protection against the feds. If they do something really stupid, the price of gold will soar. If they don't do anything really stupid, well, we'll be surprised. After all, they've already turned America into Zombieland. [If $1,000 an ounce seems a little steep for you, never fear - there is a way you can get our favorite yellow metal...for just a penny per ounce. See how here.] On our last visit to the French countryside, in Normandy, we noticed a big pile of hay beside the road, with a sign on it: "Free Milk" Another pile of hay had another message: "Farmers On Strike." The story behind these signs has a depression-era, black and white, look to it. Newsreels from the Great Depression show US farmers dumping milk rather than sell it at deflated prices. Now, French farmers do the same. Prices have fallen so low that many refuse to sell it at all. But they can't stop milking the cows. So what do they do with the milk? They give it away. Or, in a few instances, they throw it at the government's farm agency offices. Meanwhile, a story in The New York Times explains one of the reasons why milk has become so cheap. New technology makes it easier and cheaper to produce good milk cows. Technology and globalization are inherently deflationary. The former increases productivity, thus lowering the cost of output. The latter lowers prices by directing business to the world's lowest-cost producers. Deflation is the natural order of things. Inflation is always an artifice caused by government. Central banks 'target' a certain level of inflation because they think - or say they think - that a bit of inflation helps create full employment. And it does, sometimes. But it does it by treachery. Inflation hoodwinks the working class. It reduces their real wages, making them cheaper to employ. Then, the proles wise up. They realize that prices are rising. They demand more wage increases. That is when inflation begins to get out of control and presidents get out the 'Whip Inflation Now' buttons. Every time government offers to solve a problem, it inevitably makes the problem worse - except, occasionally, in rare episodes when a government-organized national defense pays off. Two interesting news items in the British press, one inspiring...one pathetic. The first concerns how to fight terrorism...and win! Terrorists use the local population in Northwest Pakistan like the New Jersey militia used the local population of Pennsylvania when it was putting down the Whisky Rebellion. That is, they barge into houses and demand food and lodging. One brave man said 'no.' The terrorists were giving him a good thrashing when his daughter took the initiative. She hit one with an axe, took is AK47, and shot him dead. The other two fled. Once again, we see how private initiative - at negligible cost - can succeed where trillion-dollar government boondoggles fail. Why make a federal case out of it? Got a problem with a terrorist? Whack him! The other story was front-page fodder for the Telegraph last week. It illustrated the real problem with suicidal people - they think only of themselves. A young woman was depressed because she couldn't have children. She decided to kill herself. She drank poison...and then called the ambulance. At the hospital, she was still conscious and told doctors that under UK legislation she had a "right to die." The doctors were forbidden from treating her. She died. Naturally, her parents were upset. Hadn't the doctors taken an oath? Weren't they morally bound to intervene, no matter what the law said? She made them all complicit in a homicide. A more considerate person would have stayed home. Until tomorrow, Bill Bonner The Daily Reckoning The Daily Reckoning PRESENTS: In this "Mogambo Classique" - originally published on October 29th of last year - the Mighty Mogambo champions one of his favorite precious metals. You might be shocked to see how well it's done over the last year. But as you'll no doubt discover...not a whole lot else has actually changed. Read on... A Bull in a Silver Shop by The Mogambo Guru Tampa Bay, Florida One of the most interesting news items I've found was on the cover of The Financial Times, where I learned that a guy named Lahde "made tens of millions of dollars from betting against the financial and property sectors during [the] past two years", and he now wanted to thank "the low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA" who made it all possible for him to find enough suckers. He noted that "These people who were often truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the aristocracy," he says, "only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America." This goes along with an article in the St. Petersburg Times about Tom James, chairman and chief executive of Raymond, James Financial, who had "some tough words for the wizards of Washington, DC who oversaw the $700-billion bailout package". He reports, "The Brave And Wonderful Mogambo (BAWM) was right all along! Those government weenies are the biggest freaking morons you ever saw, and we as a country should be ashamed of ourselves for having elected such corrupt, half-witted, utter failures and congenital idiots!" As you have probably guessed by now, he did not say those exact words, but he implied every syllable when he said, "Legislators were almost embarrassingly ignorant of how the financial system works", which I figure explains how they don't understand the linkage between their own Bad, Bad Performance (BBP) as legislators and the subsequent Bad, Bad Performance (BBP) of the economy, and he says that only 3 of 16 legislators that he talked to actually understood what was going on in the "credit crisis." Less than 20%! Hahaha! We're doomed! "More than one-seventh of all the silver bullion ‘thought to exist’ in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 10 bucks an ounce?" Well, maybe these Congressional losers will understand the unfolding economic slowdown, as evidenced by the Baltic Dry Index, which is an index of the cost to transport stuff by cargo ship, and which has fallen precipitously, which seems very important to me, and to Junior Mogambo Ranger (JMR) Riccardo, too, who is also alarmed by this like - as I previously said - me. It's actually beyond scary, in a terrifying kind of "ain't nobody buying nothing in a consumer economy" kind of way, which means that without the consumer buying stuff as his or her contribution to the famous statistic of "the consumer is 70% of the economy", we are, in case you ain't heard, freaking doomed! Well, maybe not all buying is drying up, as silver market analyst, Ted Butler, reports that in the last 10 months, "some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces." In fact, when you add it all up, "Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout." Thus, it is easy to see why Mr. Butler is "bullish beyond belief for silver", since this kind of demand means that "In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist!" Wow! More than one-seventh of all the silver bullion "thought to exist" in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 10 bucks an ounce? No wonder I am so bullish on silver! He also notes that the gold/silver ratio is at more than 80, which is "one of the biggest differences in history." And not only that, but since there are 4 to 5 billion ounces of gold in the world versus only 1 billion ounces of silver, that means that "the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5)". Talk about undervalued! Hey! This investing stuff is easy! Whee! Until next time, The Mogambo Guru for The Daily Reckoning P.S. In dollars and cents, the dollar value of all the gold in the world is about $4 trillion, while the value of all the silver in the world is but a laughably low $10 billion! Where do YOU think the most profit potential lies? Me, too! Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page. The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down