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The Daily Reckoning Thursday, December 24, 2009 Dow and dollar hold steady as gold and Asian markets both inch higher, Word on new home sales, consumer sentiment and personal spending, Plus Bill Bonner on new credit card laws, "unintended consequences" and the real meaning of Christmas... Joel Bowman with a couple of quick programming announcements... In a previous life, your wayfaring editor wrote for an even fringier financial newsletter than this one. We mused about gold, bagged the dollar and generally lamented the appalling dearth of forethought employed by any and all government agencies. In short, it was much the same as what you find here in the DR, only somewhat more "lo-fi." Without the luxury of an extensive publishing team, we simply sent out our emails from wherever we could pinch a wireless signal and a power outlet. Last Christmas, for instance, we wrote from outside a train station in Bombay. The year before it was by a pool in Dubai. As you might imagine, this kind of ad hoc arrangement presents both pluses and minuses: On the plus side, we could work from anywhere. But on the minus side, we could work from everywhere...and on any day. That meant few holidays. So this year, now that we find ourselves in the roomier, comparatively well-staffed house of The Daily Reckoning, we're going to take a day off. And we'll afford you one too. We might have missed celebrating Christmas with the Muslims and Hindus in previous years...but there's just no way we're going to forgo the tofu and turkey spread our Buddhist neighbors here in Taiwan have promised us this time around. So wherever you are, and whatever your faith, we wish you a Happy Holiday. We'll be back again on Monday with the usual reckoning program... ...but first, let's head over to the Agora Financial H.Q. in Baltimore where Addison Wiggin, filing a report for The 5-Minute Forecast, presents today's observations... 1) As we approach the end of the decade, we take stock of The Daily Reckoning's beloved "Trade of the Decade." You know it by heart, right? "Buy gold on dips, sell stocks on rallies." Bloomberg News has tallied up and reported the satisfying results... "A $100 investment in gold would now be more than $380," Bloomberg calculates, "while the same sum in commodities would have grown to about $357, according to the Standard & Poor's GSCI Enhanced Total Return Index." How will this trade perform during the NEXT ten years? Check back in December of 2019 and we'll let you know. 2) If the consumer is supposed to generate economic recovery, he's going to have to do better than this. The relevant data points yesterday morning: Personal spending rose 0.5% between October and November - a bit less than analysts expected. Incomes rose 0.4%, also less than expected. On the bright side, the spending figure has risen six of the last seven months. Consumer sentiment as measured by Reuters and the University of Michigan is up from last month, at 72.5. But that's lower than the initial estimate, and lower than analysts expected. New home sales fell 11.3%, to their lowest level since March. Yes, that was lower than expected too. The perky activity of late in existing home sales is not translating to new construction. 3) US stock indexes are taking all of this in stride. The NASDAQ Composite reached a new 14-month high in yesterday's trading and no investor, it seems, can think of any reason NOT to buy stocks. Accordingly, the VIX - the index measuring stock market volatility - shows a very high level of investor optimism. This index, also known as the "Fear Gauge" is the lowest it's been since August 2008 - just before everything hit the fan. 4) The stock market may be feeling mellow, but the bond market is becoming a bit agitated...about inflation. The yield curve - the difference in yield between a 2-year Treasury note and a 10-year Treasury note - sits at a record 285 basis points. Fork over your money to the gubmint for two years and you get a paltry 0.88%. But 10 years? You get 3.73%. Yes, that's paltry too. But it's hard to ignore the gap being this wide. Bond buyers expect a substantially higher yield if they're going to lend money to Uncle Sam for the next 10 years. That means they sense the value of the dollars they get back will be diminishing. At least that's what they sense right now. We hesitate to suggest the bond vigilantes are out in force, but at least they're out. There's also evidence the mortgage vigilantes are out wandering around again. The spread between 10-year notes and 30-year mortgage rates is widening, and also points to growing inflation expectations for 2010. Then again, some of the most celebrated hedge fund managers are seeing the same thing we're seeing. "An increase in the monetary base leads to an increase in the money supply, which leads to inflation," John Paulson said in a recent speech. (He also retains his big positions in gold.) Julian Robertson is also playing the yield curve with long-dated out-of-the-money puts on Treasuries. Short term, we may get a clearer picture when the Treasury plans to auction a record-tying $118 billion in notes next week. "Better Than Gold" One investment should rocket even faster than gold over the next 12- 24 months... yielding at least 3-to-1 gains on every dollar invested... GUARANTEED. In fact, I'm so sure of this, I won't charge you a penny to show you how... If soaring gold feels good...when this "other" metals investment makes its next big move, it's going to feel even better. With much greater potential for high returns. Read our Full Report Here. --------------------------------------------------------------- And now here's Bill Bonner and daughter, Maria, with today's reckoning from Ouzilly, France... The roads leading out of Paris were chock-a-block with cars last night. It seemed like the whole city was leaving. Normally, it takes about three and a half hours to make the drive from the city down to Ouzilly. This time, we spent twice as long, which afforded us some time to catch up with Maria...who just got in from LA yesterday. More below... Meanwhile, we continue our reckonings right up to the second most sacred day on the Christian calendar. This is the eve of Christ's birthday. At least, it is the eve of the day we celebrate as Christ's birthday... Scholars are not sure if he was actually born on the 24th...or if he was ever born at all... Did Jesus really exist? Was he the Son of God? Here at The Daily Reckoning, we can't confirm it. But we're not fool enough to deny it either. Instead, we'll go on with our work... The world of Christendom is hushed in anticipation. But the noise keeps coming from the financial world. Yesterday, the Dow held steady. The dollar too. Gold, though, rose $7. This morning, the Asian markets are moving up...following an announcement by China that she would continue her free-spending, free- lending 'recovery' era policies. Back in the USA, we could swear that we read a headline yesterday telling us that new home sales were rising. Today comes this Bloomberg headline: "Sales of New Homes Unexpectedly Fell in November." That didn't seem to stop consumers. They spent more! At least, that is what the noise said. Where did they get the money? Incomes apparently went up a little. Spending went up a little more. And then there is another item on Bloomberg News this morning. A new law will take effect in February. Like every new law, it disrupts the old laws by which people organized their lives. This one decrees that credit card companies shall henceforth cease the practice known as "universal default." If a fellow defaults on one credit card, the other credit card companies rightly figure he's likely to do the same to them. So they take precautions, cutting him off from future credit. But the authorities want people to spend - apparently, even people who can't pay their bills. So, they are outlawing the practice of "universal default." The term "unintended consequences" was invented for these occasions. As usual, the law produces the exact opposite results from those the politicians wanted. The credit card companies are tightening up on all their accounts, realizing that after the new law goes into effect in February, they will be less able to identify the bad accounts quickly and less able to control their losses. According to Bloomberg, this threatens $9 billion in holiday season sales. Blah...blah...blah...noise...noise...noise... It's best to shut it out...listen for the sound of reindeer bells...and look for a bright star in the East. And more thoughts... "There's just so much to learn. And you have to learn it from people who've done it." Maria was reporting on her experience making a movie in Louisiana. "It was really great. There were a couple of stars. One of them...I don't know if you ever heard of him...Treat Williams. He's been in the business a long time. He first made it big in the Broadway play, Hair. We had the same days off, so we spent a lot of time together. He would tell me about the business and how it really works. He was very nice to me. "Everyone was very nice. One of the other girls was a Mickey Mouse Club 'Mouseketeer'...in that group with Britany Speers and others whose names you wouldn't recognize. This girl is only 30 years old, but she's been in show business for almost 20 years." "Oh...I remember the Mouseketeers," we replied. "Annette Funicello was an inspiration to me when I was about 10." "Lafayette, Louisiana, is not a big town," Maria continued. "Everyone seemed to know we were shooting a movie there. I've never seen such friendly people. You know how the French are so cold...well, these people all seemed to have French names but they were just the opposite. They bought us drinks. The mayor made me an honorary 'Cajun." "Some people still speak French down there...but it seems to be disappearing. There are families...I was told...where the grandparents speak only French and the grandchildren speak only English. I don't know how they communicate. And I don't know how the Cajuns communicate with anyone...because it's not exactly French...and it can be hard to understand... "Well, anyway, I spent a lot of time with Treat Williams and other people in the cast...and they all told me the same thing. There isn't any secret to the acting business. It's just hard work and perseverance. It's doing a good job and making yourself a pleasure to work with. "I guess that's just like everything else. You told me about that book Outliers...that's what it tells you, isn't it? That most great successes look like pure talent...but they're really the result of thousands of hours of work. You can start with talent...along with thousands of other people. But it's the ones who put in the hard work who make it. "They say it's 'who you know' that counts. In a sense, that's right. You get good parts from the people you know. But you don't come to know them...and they don't offer you roles...by accident. It comes as a result of hard work over a long period of time. There's no other way. Unless you get lucky...and get 'discovered' by a director who wants to put you in all his films... "People want to work with you because you are talented. But it's more than that. They also want to work with you because you show up on time...you don't make trouble...and you're agreeable. That's what I learned from the Dale Carnegie book too. If you want people to want to work with you, you have to think about them and what they want, not about yourself all the time. But I guess that's true of everything. If you want other people to like you, you have to like them. If you want them to be interested in what you do, you have to be interested in what they do. "I guess it all comes back to the main lessons of the Bible, doesn't it. 'Do unto others as you would have them do unto you.' If you want people to help you, you should try to help them. "I guess that's really what we're coming down to Ouzilly to celebrate, isn't it?" Merry Christmas to all Dear Readers. Regards, Bill Bonner, for The Daily Reckoning 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 as the BIGGEST FINANCIAL SWINDLE in world history.