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The Daily Reckoning | Thursday, September 30, 2010 On this day in 2010, Social Security officially goes into the red, Introducing the Daily Reckoning Video Series: Your first glimpse, below... Plus, Bill Bonner on the March of the Zombies, gold's mania stage and that cagey ol' Mr. Market... ------------------------------------------------------- The Hour Has Come...Social Security Officially Starts Bleeding TODAY Here's a Question: What Will YOU Do When Government Retirement Goes Broke? Starting TODAY, September 30th, your government "safety net" will officially begin to shrink, paying out more than it takes in... But you can protect yourself - and find out how to collect regular income checks from the "other" gov't-backed retirement program... Simply Click Here (and turn your speakers on) to listen to our full presentation. Introducing the Daily Reckoning Video Series Joel Bowman From Buenos Aires, Argentina... Today we present a different kind of reckoning for your consideration. Those of you who are our friends on Facebook (and, ahem...like...whoisn't?) will already have noticed the first of our Daily Reckoning Video Series. We posted it a couple of days ago, but wanted to bring it to you in the ol' fashioned email version, too. Basically, we'll be lining up interviews with the leading contrarian thinkers of the day, which we'll then make available to you...free. The first of our series features an exclusive interview with Agora's founder, Bill Bonner, conducted by our own editorial director, Eric Fry. The two gentlemen sat down on the sidelines of our annual Investment Symposium in Vancouver earlier this year to discuss, among other things, the ongoing correction, the fate of the dollar, the road to Japan and plenty more. You'll find Part I of their two-part interview below: We'll be posting a few of these per month, so keep a lookout for upcoming clips, video shorts and insights in future Daily Reckoning issues. And, for the eternally hip-at-heart, be sure to check out our FaceBook page. As usual, we welcome any and all comments. Just drop us a line with your thoughts at the address, below... Now You Can Beat the Bastards at their Own Game... Hidden Gov't Documents Let You Predict Stock Moves Imagine what you could do with this intelligence... Roger Barnes of Colorado used one of these hidden documents to bank $237,000 in just 6 days... It's all perfectly legal and you can do this too! Click here to watch the new presentation now. Bill Bonner Investing in Gold With a Watchful Eye On Mr. Market Bill Bonner Reckoning from Baltimore, Maryland... What ho! The price of gold just keeps going up. It rose $2 again yesterday, to close at $1,310. The Dow fell 22 points. We've been waiting for a sell-off...for a downturn...for a resumption of the "risk off," fear-driven markets of 2008-2009. It should be coming. People are still unemployed. Stocks still aren't cheap. And houses are still getting cheaper. The latest Case-Shiller reading signals renewed weakness in the housing market. Prices are falling again. (More below...) How much farther will they go? Maybe 10% down. Maybe 20%. As we discovered on a recent trip to Florida, you can already get properties discounted 75% off their peaks. How much more is left? Probably not much on that one. But most houses are down only about 20%. They've got a ways to go. And stocks? We should see them selling at P/Es close to 5...not the 15- 20 that they're at today. So stocks have a long way to go too. But Mr. Market always has his tricks. What if he's preparing a run on the dollar...and a big blow-off in the gold market...BEFORE the sell- off in other assets? We expected stocks to go down...then, gold to go up. What if it happens the other way around? What if the final stage of the bull market in gold has already begun? What if investors and speculators begin to panic out of the dollar now? What if they sell the rumor of quantitative easing...rather than wait for the real thing? What if they drive the price of gold up to the moon, without giving us another chance to buy more at a lower price? Anything is possible. Mr. Market is a cagey, son of a gun. He could do anything. We wouldn't put it past him. Still, we wouldn't bet the farm on it either. Investment pros seem to be turning bullish on gold. "Gold forecast to hit $1,450 an ounce," says a headline in The Financial Times. That's the consensus view from the precious metals industry. "It's hard to be pessimistic about gold in the short term," said Kevin Crisp, chairman of the London Bullion Market Association. "At worst, you're neutral." We're seeing more and more bullish forecasts for gold. But so far, actual gold holdings by institutional investors attending the aforementioned LBMA conference are still tiny...less than 5% of their portfolios. As for individual investors, they've scarcely even heard of gold. Few own any at all. When they get on board - it will mean huge new demand for the metal. And there are the central banks. They have been net sellers of gold for many years. Typically, bankers are the worst investors in the world. They buy high and sell low. Someone should tip them off; that's not the way it's done. But they dumped beaucoup gold just as it was hitting all-time lows in 1998-99. And now that it's 5 times as expensive, they're beginning to buy again. When they really start buying, we'll know the game is over; it's time to get out of gold. But for the moment, they've barely begun. The biggest buyers will probably be the emerging economies. Why? Because they don't have much gold. China has only 1.6% of its reserves in gold, for example. And because they've got the paper cash to buy it. China could be a major buyer for 10-20 years...and still have a relatively small percentage of its reserves in gold. So could India. And Brazil. And Russia. So, maybe Crisp is right. Maybe it is hard to pessimistic. But so many people are so optimistic...we can't help but wonder: what's Mr. Market up to? What devious, devilish, infernal brew is he concocting? We're not pessimistic on gold. Far from it. We expect the price to go to $3,000...or $5,000 before this is over. But it bothers us that so many others think so too. It would be just like Mr. Market. Get the Johnny-come-latelies into gold. Whack them hard. Then, take gold much higher. And more thoughts... This just in, from The Washington Post: A new wave of distressed home sales is rippling, more quietly this time, through American cities and suburbs... Several years after the US foreclosure crisis erupted, the U-Hauls are back. "I love this house, but I just have to leave," said Leanna Harris, 27, the owner of a corner unit that used to be the builder's model, with a stone path in the yard and a gourmet kitchen. "I'm at peace with it now." The original owner bought the home for $400,714 in 2006; Harris and her husband, both bartenders, paid what seemed to be a bargain price, $289,000, in 2008. But they have fallen behind on their mortgage payments, in part because her husband was out of work. Now they have a $246,000 offer for the home, and the balance on their mortgage is more than that. They want to accept the offer. All they need is their bank's okay. That kind of deal is called a short sale, and it's sweeping the country. In these deals, a lender allows a troubled borrower to sell a home for less than what's owed on the mortgage. Completed short sales have more than tripled since 2008, and 400,000 of these deals are projected to close this year, according to mortgage research firm CoreLogic. The giant mortgage financier Fannie Mae approved short sales on 36,534 home loans it owned in the first half of the year, nearly triple the number in 2007 and 2008 combined. Freddie Mac, its sister company, approved 22,117 in the first half of 2010, up from a mere 94 in the first half of 2007. *** Meanwhile, zombies are on the march. Literally. We got a news item from Europe. "Thousands of protestors took to the streets in dozens of European cities," it told us. What's their problem? They don't like cutbacks in government spending. And now Bloomberg tells us that the feds want to keep track of all money transfers into and out of the US: Financial institutions have long been required to report all cash transactions, whether domestic or overseas, exceeding $10,000 as well as transactions that they deem to be suspicious. The proposed regulations would expand the requirements so that banks would have to report all cross-border transfers of any size, whether or not cash is involved. (For money-transfer businesses, the threshold would be $1,000 as opposed to that at banks, which would report all amounts.) If you send $500 to your daughter in London, what business is it of the feds? Why do you ask, do you have something to hide? The feds say they are preventing terrorism and money laundering. What they are really doing is gaining power. It can't be too much longer before you need permission to send money overseas. And then, the "rich" will be fitted with the equivalent of an electronic ankle bracelet...to monitor their financial movements and prevent them from getting away with anything. But wait. Are we becoming paranoid? Are we having a bad dream? Are we "losing it"? Maybe. But soon, finances could be a matter of US national security. And transferring money out of the country, unauthorized, could be a crime. The zombies are counting on your money. They won't give it up without a fight. 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 atjoel@dailyreckoning.com The Legacy of the Current Recession We have to wonder about the big picture. What will people say about this period 30...50...years from now? How will they describe it? What will be the standard narrative? Will they say it was a recession followed by a recovery? Nope. That story has gone with the wind. What then? Maybe they will say it was a credit cycle correction...a balance-sheet recession...much like the ’30s. “Investors should have taken a long sabbatical,” they might say. “They should have sold in 2000...and come back in 2020...” Maybe... Day Care or Default? – The long-expected decline of an unsustainable economic model When Zombies Buy Gold Is Inflation “Too Low”? ohn Mauldin, in his Frontline Weekly Newsletter, had a graph of Total Consumer Credit Outstanding, showing that it had peaked at the end of 2008 after running up to almost $2.6 trillion. I instantly leap to my feet, howling in outrage because there are less than 100 million private-sector workers in the Whole Freaking Country (WFC), and private-sector workers are the only people that can show a profit, with which to pay debt, by their labors. The Cost of Fed Incompetence Leveraging Junk Debt Off the Charts Begun, The Currency Wars Have For several years now the US and some other countries have been pressuring China to allow its exchange rate to appreciate, thereby making Chinese goods relatively less competitive in the global economy and, so the thinking goes, assisting the US and other heavily indebted economies with a necessary economic rebalancing away from consumption and imports toward investment and exports. European Central Bank Gold Sales Down 96% Return of Quantitative Easing Good for Gold The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor