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The Daily Reckoning Weekend Edition Saturday, September 4, 2010 Miami, Florida ------------------------------------------------------- The imperfect science of economics...measured imperfectly, The Coast-to-Coast Correction Tour comes to a close, Plus, all this past week's reckonings, archived for your contemplative consideration... ------------------------------------------------------- Strategic Short Report Presentation Reveals... 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. ------------------------------------------------------- Joel Bowman, reporting from the end of the road... With his toes in the sand and the cool waters of the Atlantic Ocean lapping gently at his feet, your editor can fairly say we have reached the end of our little Daily Reckoning Coast-to-Coast Correction Tour. So where to now for your Ho-Ho-hopping correspondent? Ahh, more on that below. First, some more important considerations... When we began our journey, one month, a dozen states and a few thousand miles ago, we had in mind one primary objective: to get a first-hand look at what was really going on in the world's largest economy. How are honest, hard-working folk coping with the slow, state-sponsored collapse of their empire? What, in other words, does a Great Correction look like, up close and personal? Recall that when we started our trip, it was not yet known that home sales across the United States had fallen to a record low, as they did in July after the expiration of the Fed's $8,000 homebuyer's bribe...ahem, tax credit. Equity markets were still to suffer their worst August in almost a decade. The FDIC had not yet added 53 more banks to its "problem list," bringing the total number to 859 distressed institutions, the highest number since 1993. And, according to Friday's jobs report from the BLS (which, signaling that things are "not recovering at a slower pace," was actually seen as a positive sign by the markets) a full 54,000 more people were drawing regular paychecks. Unemployment rose to 9.6% on Friday. Economics, as we never tire of reminding our Fellow Reckoners, is an imperfect science, more liquid than solid, more gaseous than liquid. Federal stooges may rope statistics to the rack, stretching and contorting them until their joints pop and they agree to comply with whatever theory suits the day, but reality becomes ever more difficult to distort as the situation grows increasingly dire for millions of Americans every day. It's why so many people scratch their heads when the news comes on every night. There's a clear disconnect between what they see on the television and what they experience in their own lives. The evening news has, in effect, become the new "non-reality television." One of the many benefits of being "on the road" is that one has little time to pay attention to the regular news. We are reminded once again of the inimitable Mark Twain's words: "If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed." Talking heads and TV neckties cast aside, your editor employed a fittingly non-scientific method by which to discern the health - or non-health - of the economy: we talked to people. We'd like to think that the average Joe (and Josephine) is a whole lot smarter than his government gives him credit for. Even if he can't connect the dots...even if they don't speak in econo-lingua, he sure knows something "just ain't right." "I'm a small business owner," an Alabama B&B owner-operator told us, "so I'm really struggling here. I voted for this administration...but now I'm not so sure. We had a plan, my husband and I. And now, with our healthcare costs rising, with the state of the economy such as it is and with the government handing all our money to their pals on Wall Street...well, we've had to really reassess the feasibility of those goals." In an issue titled The War on Small Business, our mates over at The 5- Minute Forecast published some interesting figures earlier in the week, hoping to shed some light on just how vital small businesses are to the wider economy. "To help set the stage," wrote The 5, "let's look at some important stats from the Small Business Administration (SBA). Small businesses: Represent 99.7% of all employer[s] Employ just over half of all private-sector employees Pay 44% of total U.S. private payroll Have generated 64% of net new jobs over the past 15 years Create more than half of the nonfarm private gross domestic product (GDP) Hire 40% of high-tech workers (such as scientists, engineers and computer programmers) Are 52% home-based and 2% franchises Made up 97.3% of all identified exporters and produced 30.2% of the known export value in FY 2007. Small firms produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large-firm patents to be among the 1% most cited." Of course, it's not only small businesses that are under assault. Workers around the country hum a similar sad tune... From an auto-repairman in Tuscaloosa, Alabama... "People ain't buying new cars anymore, not since that Cash for Clunkers program finished. Now they're just trying to keep what they got going as long as they can...This place got hit pretty hard, all in. The Mercedes plant, just in town, shut down half their operations, laid of some twelve hundred workers or so. In a place like this, that's a heckuva lotta people..." From a board member of a Houston-based energy company... "A few months ago, it would have been difficult to imagine a bigger disaster than the oil leak itself...then the federal government got involved. It's likely that the actions they've taken will have a more lasting, more devastating effect than the spill ever could have had on its own..." From a restaurant owner in Savannah, Georgia... "People just aren't coming in the way they used to, not these past couple of years, anyway. Things are bad. Folks are worried." From a bartender in Delray Beach, Florida... "Over the last year, well, it's just slow...and getting steadily slower." Across the nation, Big Government is doing all it can to prevent any real, honest progress from taking hold. What the central planners can't seem to grasp is that, in the same way a teenager must suffer and, in turn, learn from his own mistakes, sometimes an economy must take a few steps backward before it can stride forward again with the renewed confidence and wisdom only experience can bring. The Fed's "protect growth at all costs" policy either misses or ignores this point entirely. Either way, the result is the same. Mistakes are not corrected. Incompetence is rewarded with bailouts, not punished by bankruptcies. Bad debts are piled up, not paid down. Instead, they are left to form the bedrock of future building site collapses. "We don't know how many mistakes there were," Bill Bonner, our Reckoner-in-Chief admitted this week. "We don't know how far GDP SHOULD go down. And we don't know what would have happened if willing buyers and sellers had been allowed to sort themselves out in the age-old ways - by panic, default, bankruptcy, restructuring, and reconstruction. "We don't know," continued Bill. "We'll never know. But there is no reason to think we'd be any worse off if we'd found out a year ago. A 12% drop in GDP might have been just what we needed. We could be on the road to prosperity now, rather than looking at another 5 to 15 years of stagnation, decline, and desperation." Joseph Shumpeter coined the phrase "creative destruction" to describe the selective, evolutionary process of a naturally correcting marketplace. The weak must be allowed to fail if there is going to be room for the strong to succeed. The powers that be obviously misunderstood the concept, choosing instead to simply destroy the opportunity for creation. As far as the Coast to Coast Correction goes, real recovery begins only where Recovery Act signs stop. ------------------------------------------------------- Can You Answer This Simple Question: What Will YOU Do When Government Retirement Goes Broke? Starting September 30, your government "safety net" will officially begin to shrink. 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. ------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... AAA Ratings: A Grim Fairy Tale By Addison Wiggin Baltimore, Maryland How the ratings agencies have managed to emerge from the credit crisis unscathed and unregulated is a mystery...and a sham. "Nothing is ever clear or certain in public," we wrote in The New Empire of Debt. "Every error is someone else's fault. That is why so many men prefer it. The public world is so surrounded in fog that he thinks he sees half-naked nymphs behind every tree and $100 bills under every cushion." The Best Way to Bet on America By Chris Mayer Gaithersburg, Maryland There is lots of ugly economic news out there, but one key bright spot is world trade. In the US, one particular industry will enjoy windfall profits from exports this year. That industry is agriculture. In 2009, world trade took a big hit in the wake of the financial crisis. Global exports fell 12%. Governments tried to protect their home teams and a wave of tariffs and other protectionist measures followed. This was what happened during the Great Depression, too, as the Smoot-Hawley Tariff Act raised tariffs on more than 900 goods. America is Losing Her Way Written by Daniel Loeb Introduction by Eric Fry As every student of American history knows, this country's core founding principles included non-punitive taxation, Constitutionally- guaranteed protections against persecution of the minority, and an inexorable right of self-determination. Washington has taken actions over the past months like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others. Dialing for Dollars By Jonas Elmerraji Baltimore, Maryland With the market volatility and poor economic data ruling the market in the last few months, it's no surprise that many investors see this part of 2010 as a time to flee the scariness of stocks for more stable assets. But they're dead wrong. Many industries are starting to become oversold once again, and opportunities abound for value investors in 2010. One of those industries is wireless communications... Print Money and Be Damned! By Bill Bonner Paris, France Japan was the world's most admired economy in the '80s. Then it was the world's most despised economy in the '90s. By 1995, economists pointed their fingers and laughed - the world's most admired businessman had lost his left shoe. But now, much of the world is barefoot. The US inflation rate has been going down since the early '80s and was cut in half since last year. It now hovers barely above zero. Surely Japan - where prices have been falling for 2 decades - has something to tell us. ------------------------------------------------------- And now a quick word from Addison Wiggin, from Agora Financial's H.Q. in Baltimore, Maryland... For seven years, we've been conspiring to put together a research advisory service that covers the nexus between money and politics, between Wall Street and Washington. We wanted to cut through the clutter you see from corrupt and polluted research departments at the biggest investment banks on Wall Street to deliver you useful ideas on how to protect and grow your wealth. Now, after seven years, countless hours spent and miles traveled, conferences attended and books written, we're finally ready test the idea of Apogee's high vantage point research again...and we need your help. Details Here... ------------------------------------------------------- The Weekly Endnote: While on the subject of small businesses and the various state-sponsored harassment they are routinely subjected to, we must make mention of a new film project our colleagues, Addison Wiggin and Kate Incontrera, are currently hard at work on. While assault on enterprise is the general theme, one company, Odyssey Marine, provides a fascinating case-study of how bureaucratic meddling impedes the entrepreneurial process. If you haven't caught the preview clip of this upcoming doco, you are welcome to do so, here. At this early stage in production, Kate and Addison are still inviting suggestions from our Fellow Reckoners, so be sure to let 'em know what you think. Readers will also note there is an offer for some of the coins Odyssey brought up from the wreck of the SS Republic. That offer comes by way of our ongoing business relationship with First Federal Coin. As is customary with these offers, be aware that if in fact you choose to take advantage of the offer presented, we're likely to receive compensation. Again, just a heads-up. Until next time... Cheers, Joel Bowman Managing Editor The Daily Reckoning P.S. After a month of living out of a suitcase (two if we include the previous month roaming around Asia's Far East), we're finally heading to our new home. And where is that? From next week onwards, your managing editor will be reporting from Buenos Aires, Argentina. P.P.S. A personal thanks to our hard-working web editor, Greg Kadajski, who, delivering your Daily Reckoning every day, held steadfast to the publishing timetable...especially when our "on the road" scheduling strayed far from it. Thanks mate! ------------------------------------------------------- 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 The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future Have You Heard of the OTHER Government Backed "Pension Program?"