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The Daily Reckoning | Wednesday, June 23, 2010 Putting logic where there is none - a market built on fear and greed, Should I stay or should I go? The final installment in our "expat" series, Plus, Bill Bonner on razing Baltimore, the terrible outlook for the real estate market and the beginning of the "next dip"... Don’t Underestimate Canadian Economic Growth Why the US’s “neighbors to the north” are optimistic about the future of their economy Eric Fry Reporting from Laguna Beach, California... The Dow Jones Industrial Average tumbled 149 points yesterday. CNBC blamed the selloff on a poor home sales report. Seems as good an explanation as any to explain the inexplicable. Most financial journalists assume that a certain logic and rationality operates minute-by-minute in the financial markets. Stocks go up when they should...and fall when they should - continuously responding to the macro-economic data of the moment. Maybe that's true...or maybe the stock markets behave as logically and rationally as a teenager. Maybe stocks go up just because they feel like it, even if it makes no sense whatsoever. And maybe stocks sometimes fall, even when they possess every imaginable reason to go up. Your California editor has no idea what causes the minute-by-minute price action in the stock market, but he's pretty sure it isn't logic or reason. Over the short-term, the stock market is not a laboratory. It is one part casino; one part cage fighting arena. Greed and fear dictate behavior. Not logic and reason. Fortunately for us investors, logic and reason are the primary influences over long-term price trends. So let's consider yesterday's housing number in the context of the stock market's long-term prospects. "Sales of previously occupied homes dipped in May," the Associate Press reported, "even though buyers could receive government tax credits. And nearly a third of sales in May were from foreclosures or other distressed properties... "Last month's sales fell 2.2 percent from the previous month to a seasonally adjusted annual rate of 5.66 million," the AP continued. "Analysts who had expected sales to rise expressed concern that the real estate market could tumble once the benefit of the federal tax incentives is gone entirely, starting next month." That's not good news. This statistic suggests that the US recovery is less robust than many optimistic investors had believed. Furthermore, the sluggish home sales report is not an outlier. It is, instead, an "inlier" that corroborates the recent wave of disappointing economic reports. The US recovery is beginning to look like an impostor. Up north, meanwhile, our Canadian neighbors are producing some impressive economic results. Perhaps that's why so many Canadian readers of The Daily Reckoning are crowing about their good fortune. A few days ago, when we, the editors of The Daily Reckoning, solicited first-hand accounts from our dear readers about the quality of their lives in America, we also solicited accounts - good or bad - from other nations around the globe. Even though this second part of our request seemed like a throwaway line, many readers took it to heart...many Canadian readers, that is. We received a very large number of pro-Canada emails, and not a single one that contained an unkind word about the friendly nation up north. "Hey, it ain't so bad," one reader writes. "Life is still pretty darn good...here in Canada. Totally self-sufficient!" Another proud Canadian writes: "I can only hope that the hard-working American citizen would consider moving to Canada. We could use about 5-10 million hard working Americans. "Here are few very good reasons: "1) Top personal tax bracket 46% (combined federal and provincial). For that we get free schools, free health care, and a social safety net that works. "2) Top corporate tax rate of 38% and a small business tax rate of 16.5%. The top corporate rate is scheduled to drop to 26% in five years. "3) Live in one of the safest places on earth. The crime rate is very low. "4) Freedom to travel abroad where all countries welcome you and like you. "5) A banking system that works. Sorry, no easy way to buy a home without 10% down at least. "6) Most populated cities do not have the risk of forest fires, floods, tornadoes, hurricanes, mudslides or earthquakes. "7) A rich resource base in oil, gas, gold, copper, iron ore, lumber, potash, wheat and uranium. "8) A small 35 million population. "9) Real estate prices are very affordable. "10) A government system that works (most of the time). We are the Saudi Arabia of water resources. "11) We produce the best comedians in Hollywood, (Jim Carey, Mike Myers, Martin Short, Howie Mandel, Dan Aykroyd), some great actors (Michael J. Fox, William Shatner, Pamela Anderson, Donald and Kiefer Sutherland, Keanu Reeves, Matthew Perry), some great musicians (Celine Dion, Brian Adams, Bare Naked Ladies, Neil Young, Alanis Morissette, Gordon Lightfoot, Paul Anka, Rush.) "12) If you believe global warming is coming, then Canada will have the best climate over the next 100 years!!!" Canadians were not the only Daily Reckoning readers to sing Canada's praises. Several American readers also chimed in. "I just want to take this opportunity to say how glad I am to own a house in Canada at this time," one Canada-loving American writes. "The house not only places a large portion of our net worth in Canadian dollars - a resource-based currency that seems to be in increasing demand - but it also represents a nearby refuge should the times and circumstances warrant... "The Canadians having successfully fended off US attempts at conquest/annexation on at least two previous occasions (pre-Revolution and War of 1812). The question in my mind is, 'Can they "threepeat"?' Or, in Canadian parlance, 'Can they pull off a hat trick?' Time will tell. I hope the occasion for that attempt doesn't arise, but it's comforting to know the Canucks have done it before, since they're otherwise so precariously near to what I'm more and more feeling may be ground zero. "Forgive my tone," the American reader concludes, "but I'm getting a rather ominous feeling when I observe the day's events. I hope this isn't classified as America-bashing, because I really would like to see us succeed." Another American reader, who also refrained from America-bashing, did not hesitate to do a little Washington-bashing. "Belgium has been in the news of late, as they move to a weaker central government," he writes. "The path is being cleared for them to easily split the country and give the Dutch speakers freedom from their French speakers. It's a possible path for the USA also. Move powers from the federal government back to the states. "As a resident of Montana," the reader continues, "we often consider that we could get a much better deal from Canada than the group in Washington DC. Like the Dakotas, we've avoided many of the federal government's disastrous and expensive social experiments. We just need to build some bigger walls to keep out Potomac toxic wastes. "Don't flee Dodge," the reader concludes. "Come to the northern Great Plains and help build a wall to keep out the left and right coastal elites' ideas." The self-satisfied accounts from and about Canada should be no surprise, given the pleasing economic data issuing from Ottawa. "Canada thinks it can teach the world a thing or two about dodging financial meltdowns," the Associate Press reports. "When the G-20 world leaders [arrive] in Toronto next weekend [for an economic summit, they] will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered... "The banks are stable," the AP continues, "because they're more regulated. As the US and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren't as leveraged as their US or European peers. There was no mortgage meltdown or subprime crisis in Canada. Banks don't package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans. "'Our banks were just better managed and we had better regulation,' says former Prime Minister Paul Martin, the man credited with killing off a massive government deficit in the 1990s when he was finance minister, leading to 12 straight years of budget surpluses." Although Canada is back to running deficits, the International Monetary Fund expects the country to be the only one out of seven major industrialized democracies to return to surplus by 2015. Canada's economic successes stand in stark contrast to the travails of her large neighbor to the south. The American economy is struggling. But that's not all. The American way of life is also struggling. At least that's what many Daily Reckoning readers assert. Please find their insights below... The Daily Reckoning Presents The American Dream, Re-revisited Guest Editor Edited by Eric Fry and Joel Bowman Dear DR... I have been reading your publication for a while now and generally agree with your conclusions about the financial condition of our country. This is my home. It is where my job, family, and friends are here to support me. Someday I will have grandchildren. I don't want to give up on, or leave our country. After the health care bill passed I decided to see what I could do to help get us back to freedom and fiscal responsibility. I have always been a libertarian at heart, but not politically active. I have no interest in telling anyone what to do. I live my quiet life until government gets too involved in mine. I don't have any horror stories, but I see a storm on the horizon for everyone. I started by joining the Libertarian Party online, contributing ten dollars per month. I then attended the state convention in Ohio, and also the national convention in St. Louis. It was not at all what I expected. I expected to meet successful, intelligent, libertarian minded men and women, similar to the ones that write for your publication and others that I read on a regular basis. The party is small, consisting of mostly men with degrees in computer science and a few hippies left over from the sixties. They spent too much time debating between themselves about wording in the Party Platform. They are fiscally responsible, with little funding. The whole experience left me sad, frustrated and not knowing what to do next. Where are YOU? Why do you encourage the rich to leave instead of fighting for our freedom? How can you give up on the greatest political experiment in the history of the world? How can you let corrupt politicians get away with robbing what belongs to our children? Why not encourage small businesses across this country to unite and stop withholding taxes from the paychecks of our workers? Don't you realize that before you know it there will be nowhere on earth left to go where you can escape the clutches of government? I say we need to fight, not flee, before it is too late. -------------------------------- I graduated college in December, 1995 with a Bachelor's Degree in Construction Management. I have been gainfully employed since that time. I have switched companies two times since college, and have found both jobs within just a few days of starting to look. I have been with the current company I'm with for the last 8 years. I am currently looking for a new company to work with, as I desire to relocate due to my family's needs. I have been on two interviews in the last two months, all the while, being currently employed. In other words, I can afford to be choosy about which job I accept. I make average to slightly above average income. I'm not sure what the average income in America is, but we are fortunate that my wife can stay home with three young kids, while I earn income. We live within our means, and don't shop on credit. So, for me and my family, things are pretty good. I feel secure about my future. Now, here's the catch: I work for contractors who provide construction for the Federal Government. The very projects that end up on spending watchdog and pork-barrel tracking websites are the very same projects that keep food on my family's table. If I leave my current location (construction at a military base) I'll just end up in a similar location (construction at another military base). So, on the one hand, I'm extremely grateful that I'm gainfully employed, and continue to bring home the bacon for my family. It's fair to say that we've been untouched by the economic malaise of the country. Yet, I'm always on the lookout. What happens when the Government acknowledges they're out of money? What happens if they decide to quit waging expansionist war policies across the globe? What happens if the Government coffers to the war/spending machine close, for whatever reason? Well, I consider myself safe, for now. -------------------------------- I'm probably one of your very few subscribers who are actually going through this process. Let me tell you first how much of a relief and pleasure it is to read analyses from such a reasonable, level-headed group as the Agora team, and especially to read such an emotion-free article about expatriation. I love your point of view (maybe because it matches my own). Initially I wasn't going to respond to your survey. But this time I thought my experience may be helpful in some way to others. Too, the benefit of complete anonymity is also helpful. I am due to expatriate in a few months (the waiting list at the US embassy in Switzerland is incredibly long and one needs to wait nearly a year!) Let me just say that one of my parents is European and although I was born and grew up in the US, I always simply had an affinity for Europe and came here to live and work right after finishing my studies. Let me also say that I never imagined I would take the steps of giving up my US nationality, until recently (at least I never seriously considered it). I grew up in a gung ho household in the US and still feel patriotic. I even still support the US military engagements abroad, despite their expense, because the US is simply the center of the international system and were it to disappear, something worse might take its place. So to sum up, I sometimes can't believe what I'm about to do. But do it I must, for I would be a fool not to. I have lived in Europe since my early 20s and have always had to pay my US taxes, both on my wealth in the US and on earnings abroad, when these surpassed the foreign earned income exemption. I inherited money in the US, so this has put me in a quite different category from my US colleagues here in Europe who say they don't bother filing their tax returns. I am a bigger fish and would get into significantly more trouble. Having said that, I have always filed and paid my US taxes - in fact, I don't have anything against paying taxes in principle. On average, I have to cough up around $4,000-$5,000/yr just for a CPA to file my tax return, consisting of pages and pages of AMT calculations designed to net the US government some money despite all my exemptions, such as the fact that I live in a higher tax jurisdiction than the US (yes, my taxes here are several times higher than what I would pay in US Federal taxes, yet the Treasury still wants its pound of flesh no matter what). And this amount doesn't even include what I actually have to pay to the IRS (which is a factor of several times more). On top of that, I have observed that over the years, my US taxes have steadily increased at similar income levels. What I observe in the tax trend is this: taxes and reporting requirements have increased over the last decade despite who occupies the Oval Office. It has been largely a non-partisan strategy to simultaneously lower taxes for US residents, while simultaneously raising expats'. And I'm throwing it in too. I'm not sticking around to see what happens, or what would happen to me as a designated "US person" here. For over a decade, I had a simple salary account at UBS. I was always a good customer and they even assigned a personal representative to me, to pester me into investing with them. After I moved back to the US briefly last year, they closed my account in the most inconsiderate way, only because I am a US person. I was fully compliant with the IRS as to my overseas accounts (not offshore, since I live and work in the country where I have the accounts). Afterwards, I was scrambling to find another bank. Two turned me down for the same reasons. Can you believe that? Finally, I got into another bank through personal connections. I have opened a business here and cannot handle the instability that my expensive, blue passport costs me. At any moment I could be thrown out of my account because of some political disruption, big or small. After I legally established my company and dutifully filed the paperwork with my CPA here, the first letter my company received was a letter from the IRS, stating that if I want, I can make electronic bank payments to them. What? It was a start-up company with no revenues yet (and not even a company tax return). My Swiss colleague, who gave me the letter, was also somewhat angry and made a comment about the tentacles of the US treasury trying to reach into every nook and cranny abroad. This octopus metaphor is really the whole point. Here in the Swiss media there are increasing reports about "US persons" (as one is referred to here, when one has some connection to the US but not even US citizenship) getting screwed in one way or another, because of the ravenous IRS. One Swiss lady even has an international arrest warrant on her and cannot leave Switzerland before her case is cleared, because she failed to report to the IRS an inheritance she received, while living in Switzerland. So, I hope this letter sheds some light on my personal motivations for giving up my passport. The way I see it, I should only pay taxes in the country in which I live and work. Having to pay taxes to some other country, for which I get no benefit (gee, how about a blue passport?), is theft, pure and simple. I love where I live and wouldn't trade it for the world. But, having said all that, it has not been an easy decision for me. Although common sense dictates the right thing to do in my case, it is only with a heavy heart that I will go to the Embassy and list the reasons before a consular officer, as to why I don't want to be a US citizen anymore. I really don't want to do this, but am being forced to, for the sake of my future and the future of my family. In my view, the US was and is a great country, but the goose that laid the golden egg is being slowly choked by a bureaucrat who seeks to piggyback the goose's success to expand his or her own. -------------------------------- As an expat I can personally attest to the benefits of expatriation being very real and hugely rewarding. Since The Daily Reckoning is primarily about investing and attaining financial freedom, I'll focus on that aspect. I obtained what is called economic citizenship from St. Kitts & Nevis, and then dropped my US citizenship. St. Kitts & Nevis is a British commonwealth in the Caribbean, and a tropical paradise tax haven. If you visit and can swing the tab, stay at the Four Seasons - it's very nice. Anyway, to cut to the chase, the annual amount I save by no longer paying the raft of US taxes covers ALL my living expenses in my new home. It also quickly paid the cost of getting my new passport. Being able to buy and sell stocks, gold, silver, oil, currencies, options, bonds - you name it - while paying ZERO taxes is such a boon it's hard to overstate. It's a total game changer to be able to invest freely and not even think about taxes. The process of investing becomes so much clearer that until you're there, I don't think it's possible to fully "get it." I certainly didn't, and I can't believe the mental haze I lived in for so long when it came to investing. The other benefits you mention on your list have been true for me as well. Not filing tax returns anymore and flushing money on accountants year after year is something I give thanks for every April. It's like a second Thanksgiving! I express my thanks by giving more money to charitable causes than I could afford to when I was property of Washington DC. I also can vouch for the point about sleeping better knowing your money is no longer funding corporate bailouts, military invasions, political boondoggles, and all the other rip-offs that The Daily Reckoning covers on an ongoing basis. I still travel to America occasionally (I got a visa after I became an expat), and it's sad to see how many regular people are suffering. Unfortunately that suffering will continue and only get worse as the avalanche of debt and unfunded liabilities that Agora has warned about buries them in the coming years. Whether it's mass deflation, hyperinflation, stagflation, or some other unforeseen blowup, the middle class will be largely wiped out. People already know they've been ripped off, even if most don't understand the mechanics of how it happened and continues to happen. Going forward I think you'll see scapegoating, civil unrest, even widespread violence. I'm glad I won't be anywhere nearby if and when it happens. To wrap up, I'm one of the increasing numbers of people who has "gotten out of Dodge," and I'm truly glad I did. I recommend it for anybody who considers personal freedom and financial freedom to be more than just feel-good slogans. I didn't abandon the ideals of America. I decided to pursue those ideals on my own terms rather than paying politicians to work me over while telling me I'm free. Everybody has their own line in the sand. They crossed mine. If some day America is no longer under the control of corrupt thieves, then I'll be first in line to return. Until then, I wish those who decide to stay the best of luck. -------------------------------- It's true I am a Canadian but please don't discount my insight. I've been hanging around the US for about five years total. I like the place. Americans like Canadians and actually often listen to us... Americans are smart, aggressive, inventive and, once you have their attention, focused problem-solvers. Here's my take: all the lousy, low-paying repetitive jobs are now offshore leaving the land of the somewhat free, free to innovate and rebuild their manufacturing base. I'd start with extremely complex, high precision products that others make a botch of. Its true the Indians, Chinese, Germans, Japanese and even the Brits are inventive fellows. They come up with clever ideas. So I'd scour the world for their most complex, technically challenging, currently low- yielding, high-valued products and build them here and grow the manufacturing base back on excellence. -------------------------------- I graduated from the University of Arizona in 2007 with a degree in Political Science. After graduation I applied at a number of large companies (Microsoft, Cisco, etc.) but did not get hired. I actually ended up getting an internship for the great Libertarian talk show host Charles Goyette... After the internship I still couldn't find anything and worked for my dad part time (small consulting business). I eventually found a sales job in Seattle (friend of my dad's) that is a $26,000 base. I am still working at the same sales job a year later, but I am not making enough to live on, so I had to get a second job at Macy's that pays $9.00 an hour. So I have to work 7 days a week, and have basically determined that my college degree is worthless. Prior to taking the job, I knew nothing about the industry I am in (gateway software/payment processing). So basically to sum my situation up, college was a complete waste of time. I think if people desire to be doctors or engineers it is necessary, but for the social sciences I really have my doubts. That is not to say the social sciences are useless, they are extremely important. I just don't think people need to waste five years of their life getting a degree in political science or sociology, etc. -------------------------------- I am a 45-year old male, born in the USA of immigrant parents. I am college educated and an entrepreneur. Since my 18th birthday, I have never had a full-time paying job and have always run my own businesses. I have been married 13 years this week and have one daughter. Thanks to the United States, I feel I have lived a blessed life. However, I have never been more frightened than now of my family's future prospects in this country. The bottom line is that a superior education and a high paying job are quickly becoming things of the past. For the first time ever, my own father has told me he felt sorry for this country. Please, do not take this as America-bashing. This is an emotional subject for me. I find incredible the thought that my parents have the slightest feeling that maybe they did the wrong thing leaving their home countries. Unless the United States offers opportunity in greater and greater quantity, I fear the future here. I see this fear every day. My business is about the entrepreneur. With almost 1 million square feet of retail property in our control we see daily the struggles of small business owners and the effects of government policy on their businesses [notwithstanding the recession]. Most of our tenants have ethnic backgrounds and are proud of their success here. But I am seeing more and more not just quit, but leave the country. This is not good. I can only pray that by understanding the history of the United States, its leaders can keep her a frontrunner of opportunity and success. Members of the freedom-seeking Daily Reckoning Readership, for The Daily Reckoning Joel's Note: That's the last in our "Get Outta Dodge" series on expatriation. We hope you enjoyed reading our fellow reckoners' emails as much as we did. A big thanks goes out to all who contributed their own insights, either from within the US or from abroad. On a personal note...even as a young kid, growing up in Australia, your editor always had a tremendous respect for the idea of America, as enshrined in its founding documents. The concept of "negative laws," those that outline what a government cannot and must not do, rather than what it ought to do, is something very close to our heart. It is difficult to overstate the importance of allowing each and every person the freedom to walk his or her own path, to follow life, liberty and the pursuit of happiness wherever it make take them and in whatever form they may find it. For our fellow reckoners who choose to stay and "fight the good fight" back in the States, we recommend keeping abreast of the constantly changing economic environment. If, for example, you are banking on Social Security payments in your future, you will be interested to discover that, as of September 30 THIS year, that fund will officially begin shrinking. In other words, it will finally begin paying out more than it takes in. Economists always new this day of reckoning was coming, thanks mostly to the nation's "inverted pyramid" demographics, where more and more retirees come to rely on the contributions of fewer and fewer workers. What they didn't forecast, however, was that this day would come so soon. In an effort to keep you ahead of the curve, we'll be featuring a few essays on this very topic over the coming weeks from our friend and colleague, Jim Nelson. Jim is the editor of Lifetime Income Report, a research service that focuses on alternative sources of income. Keep a look out for his findings in upcoming issues... In the meantime, you're free to check out his latest write-up, which explains in detail the Social Security fiasco - and what you can do to protect yourself from the fallout - right here. Bill Bonner Economic Recovery Awaits the Housing Market Correction Bill Bonner Reckoning from Baltimore, Maryland... What happened to the recovery? This report from AP: WASHINGTON (AP) - Sales of previously occupied homes dipped 2.2 percent in May, signaling that a boost from home-buying tax credits is fading sooner than expected. Last month's sales fell from the previous month to a seasonally adjusted annual rate of 5.66 million, the National Association of Realtors said Tuesday. Analysts who had expected sales to rise expressed concern that the real estate market could tumble once the benefit of the federal incentives is gone entirely, starting next month. Sales have climbed 25 percent from the 4.5 million annual rate hit in January 2009 - the lowest level of the recession. But they're still down 22 percent from the peak rate of 7.25 million in September 2005. Economists were surprised, say the reports. The feds are still paying buyers $8,000 to buy a house. And still the number of buyers is going down. What this revealed about the housing market was much less interesting than what this revealed about economists, who seem to be completely unaware of what is going on. They think the economy is recovering. So, why aren't more houses selling? Meredith Whitney: "No doubt we have entered a double dip for housing." Well, it may be a surprise to economists. And it's surely a disappointment to most Americans. But to us here at The Daily Reckoning it's just another day in a Great Correction. Housing hasn't been corrected. There are still millions of homeowners with scores to settle. They paid too much. Their houses are now worth less than what they paid. It's just a matter of time until they default...or their debt is restructured. We get our news from CNN en Español on the way to work. We're trying to learn to speak Spanish. We learned this morning that more than a million Hispanic homeowners are in danger of losing their houses. Typically, they bought a little too late in the cycle. Typically too...they lost their jobs in construction or the service industry. Detroit is dealing with its surplus housing issue. "Detroit razing itself," says a news report. Good idea. There are vast areas of Baltimore that should be razed too. Baltimore hit its peak population in the '60s. It's been downhill ever since, with only about half as many people in the city today as in its heyday. But the Great Correction has targeted much more than the housing industry. "For small companies the credit crunch won't go away," says a Wall Street Journal headline. That's what happens in a correction. Banks are reluctant to lend. The banks are holding onto cash. So are other businesses. And smart individuals hold cash too. Few people want to start new businesses or finance them. Because the odds of losing money are too great. The real economy isn't expanding; it's contracting. That means businesses are fighting for market share...and fighting to stay alive. Banks figure they'd rather put their money into a sure thing - US Treasury bonds. And here's another aspect of the Great Correction: "Extremely bad profit margin outlook," says a Bloomberg report. The margin outlook is bad because companies have tried to protect profits by squeezing out unnecessary costs - including employees. But there is only so much of that you can do. Besides, cost-cutting has a negative effect on the economy. One company's costs are another company's top line revenue. So you can see where that leads. One cuts and the other must cut too. Pretty soon, you have a correction...maybe a recession...and maybe a depression. Yesterday, the Dow dropped 148 points. Gold went nowhere. Our guess is that the Dow has a lot more dropping to do. Ambrose Evans- Pritchard, writing in the Telegraph: Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress. Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction. Albert Edwards from Societe Generale says the Atlantic region is one accident away from outright deflation - that 9th Circle of Hell, "abandon all hope, ye who enter." Such an accident may be coming. The ECRI leading indicator for the US economy has fallen at the most precipitous rate for half a century, dropping to a 45-week low. The latest reading is -5.70, the level it reached in late-2007 just as Wall Street began to roll over and then crash. Neither the Fed nor the US Treasury were then aware that the US economy was already in recession. The official growth models were wildly wrong. David Rosenberg from Gluskin Sheff said analysts are once again "asleep at the wheel" as the Baltic Dry Index measuring freight rate for bulk goods breaks down after a classic triple top. The recovery in US railroad car loadings appears to have stalled, with volume still down 10.5pc from June 2008. The National Association of Home Builders' index of "future sales" fell in May to the lowest since the depths of slump in early 2009. RealtyTrac said home repossessions have reached a fresh record. A further 323,000 families were hit with foreclosure notices last month. "We're nowhere near out of the woods," said the firm. Companies are worth what people will pay for them. But a correction drives top line revenues down. Companies are not worth as much as they were when the top line was going up. Gradually a depressive mentality takes over. People begin to doubt that 'recovery' is right around the corner. They begin to wonder why they paid so much for a house...or for stocks. They begin to figure out how to get out of the deal. In the case of the house, they let the mortgage company know that they're not going to continue paying for something that is falling in value. And in the case of stocks, they sell. Stocks and housing keep going down and until they finally reach the dismal, desperate bottom. And more thoughts... How does it feel to be a has-been? Well, we don't feel too bad about it. How about you? Almost all the developed countries are headed for crises, collapse, and used-to-be status. Their debt is still rising. They have made promises to retirees that can't be kept. They have expenses they can't meet...an aging population...uncompetitive industries...and zombies on every street corner. Who has the money? Well, the biggest piles of it are in the hands of Asian nations. Who buys more cars? The Chinese. Who buys more stuff, generally? The emerging markets. Who has the biggest economy? Ah...at least we're not has-beens yet. The developed countries still have the world's biggest economies. But that will change soon. When Goldman Sachs first did a report on the BRICs, it projected out growth rates in India, Brazil, Russia and China and estimated that their economies would overtake the big 4 developed economies by 2040. Now, the estimate is 2027. Developed countries can't grow fast; they can barely grow at all. They have too much debt and too many zombies. Too many retirees who need to be supported. Too many government employees. Too many lobbyists and government contractors. Too many privileges and too many people trying to protect them... Everybody wants something for nothing. As an economy ages, more and more people find a way to get it. On CNN en Español, for example, we learned that a town in Nebraska is trying to prevent illegal aliens from gainful employment. The citizens of Fremont, Nebraska, want try to use the law to prevent others from competing for jobs. Zombies always vote. Regards, Bill Bonner, for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com Correction Turns “Great” Thanks to Government Intervention A Great Correction is what you get when a great many things need to be corrected at the same time. When the crisis of ’07-’09 came, economists immediately began talking about a ‘recovery.’ But there was no way the economy could go back to being what it had been. What it had been was excessive, over-the-top and unsustainable. It couldn’t go back. It had to go forward. Tony Hayward Before Congress: No Sympathy for the Oil Man Yankees Seek Tax Refuge in the Deep South Euro Declines on a Sea of Bankruptcy and Paper Promises Do you ever get the feeling that you are in some kind of weird dream, where someone is holding a pillow over your face so that you can’t breathe, and you can dimly hear your children asking, “Is he dead yet, mom?” and I am thrashing around and yelling out, “No, I’m not dead, you morons!” but nobody is paying attention? Me, too! The Correlation Between Morons and Government Debt Insufficient Silver to Supply China’s Growing Demand The Governator Will Have to Train Harder Outsized California pensions — lobbied for by powerful unions like the Service Employees International Union and the California Teachers Association — are more than the state budget can bear. Even Arnold, the Governator, is struggling to put this weight up... and looks puny by comparison. How US Military Supremacy is a Soviet-Style Poison Pill Roubini and Taleb: A Tale of Fat Tails