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The Daily Reckoning | Friday, December 10, 2010 Technology: the ultimate guard against Fed-sponsored stupidity, How much "cool fowl" does $14 million buy you? Plus, Bill Bonner on why bonds may finally be cracking up and plenty more... ------------------------------------------------------- 2,932% Gains Possible from Serbian King's "Hidden" $884 Million Goldmine*** One tiny Canadian company has found a way to access this buried treasure - you could make gains of 2,932%, or more. Claim your share of the King's $884 million goldmine by watching this epic new presentation - right here. *** NOTE: This offer is limited to the first 500 reports. If you want in, act today. Once these reports are gone, the offer is closed. Leaving the Scene of the Crime Bernanke Meddles as Bondholders Exit the Market Bill Bonner Reckoning today from Baltimore, Maryland... As were the days of Noah, so will be the coming of the Great Correction (38) For as in those days before the flood they were eating and drinking, marrying and giving in marriage, until the day when Noah entered the ark, (39) and they did not know until the flood came and swept them all away, so will be the coming of the Great Correction... - Apologies to Matthew 37, (Sent to us by a Dear Reader) Gold +$9. Dow -2. What more do you need to know? Well, what you OUGHT to know is that the bond market may finally be cracking up. "People are getting out...shell-shocked at the speed of the rise in yield," says a "strategist" quoted by The Financial Times. Bond buyers are leaving the scene of Bernanke's crime. They are packing up and moving out. The yield on the 10-year note hit 3.33% on Wednesday...a full percentage point over its October low. Whoa. The bond market is the biggest, most important market in the world. What would cause a 25% move in so little time? Bernanke pledged to lower bond yields (raise bond prices) back in August. He said he would buy $600 billion worth of US government bonds with money he was going to print especially for that purpose. And another $250 billion more with money he got from selling those mortgage backed monsters he acquired in the Panic of '08-'09. You'd think that a guy with $850 billion in his pocket could pretty much name his own price. But central planners always seem to run into a ditch. Even with their eyes wide open and GPS on the dashboard. Here we are almost at the end of the year and what have bonds done? They've gone down! They defied Ben Bernanke and all his ilk. They thumbed their noses. They turned their backs and dropped their pants! We're beginning to feel a little sorry for Ben. He's like a rich kid in school with a flashy car who still can't get a date. Oh, the humiliation! Oh, the shame of it! Wait a minute. We're not going to waste a minute of sympathy on the little creep. He got himself into this mess - against our advice. He should be grateful they don't castrate him. Or run him out of town on a rail. Lucky for him they don't do that any more. The Great Correction, mentioned above, is still on-going. Unemployment numbers actually got worse in the latest reading. So did home pricing. As for retail, holiday-inspired spending, the figures are mixed. As near as we can tell, de-leveraging has a ways to go. A long ways. Say, 7 years? Maybe longer. That's how long it OUGHT to take to squeeze the debt out of the system. But Mr. Bernanke, the aforementioned little creep, is making it a lot harder. As the private sector squeezes debt out, Mr. Bernanke pumps it in. That's why we're seeing such crazy anomalies. It's a correction - yet commodities, emerging market stocks, collectibles, oil, gold...all are flying off the shelves and out of the wells. Did you see what happened to Audubon's bird pictures? A book of them sold for $14 million at Christies. Okay... He could draw some cool fowl. But $14 million worth? Our guess is that the price tells us more about Mr. Bernanke's cuckoo money machine than it does about the bird man. And look at what is happening in Australia...below.... And the strangest anomaly has got to be the rise in interest rates. Whatever good Mr. Bernanke thinks he is doing is surely undone by rising rates. Now, he can print all he wants. He may make an even bigger mess of the economy, but he won't be able to get interest rates down that way. He prints...the feds spend...and rates rise, squeezing the real economy even harder. Rates rise like Noah's floodwaters. Make sure you've got an ark. More thoughts, after today's guest column... The Daily Reckoning Presents Technology is the Best “Inflation Trade” Ray Blanco As you know, we are about a month out from the Federal Reserve's decision to pump additional funds into a slow US economy. Of course, this decision has been controversial. Many people think that it might ignite an inflation bomb. Couple this with the more recent bailout of Irish banks (and speculation about more euro dominoes about to fall) and lots of folks are pretty scared. For the long-term technology investor, however, I don't think it really matters. From an orbital perspective, these panics come and go. They always have. The technological arc of human history, however, can be seen to move in only one direction, and that is upward. Granted, over the short term, it might have some negative effect, but even that remains to be seen. Breakthrough technologies, however, are an excellent way to weather an inflationary storm. We could even call breakthrough technology the ultimate hedge against inflation. Microsoft, for example, was founded in 1975, when inflation averaged over 9%. Granted, it wasn't publicly traded back then, but there were private investors. Imagine what a dollar invested in Microsoft in 1975 would be worth today. Just since its IPO in 1986, the company has turned a (split-adjusted) share price of 10.1 cents into over $26. That is a gain of more than 26,000%. Even with the dollar losing about half of its purchasing power since 1986, that is still an inflation- adjusted gain of 13,000%. I can live with that. The point is that early investing in companies that will transform the market will beat any devaluation caused by inflation. What kinds of technologies transform the market? Essentially, what we look for in Technology Profits Confidential are transformational innovators that reduce costs by making things cheaper and better. This investment theme extends to a wide variety of fields, from agriculture, to alternative energy, to computers and semiconductor fabrication. In the medical field, too, emerging technologies are going to reduce the cost of existing therapies. At the core of everything is materials science. In this, all the fields are converging on the basic building block of matter itself - the atom. Of course, there is a double benefit in the case of breakthrough medicine, too. Even if the overall measurable economic cost of health care increases, there is an unmeasurable noneconomic windfall, and this is human life itself. Better therapies improve the quality and enjoyment of our lives, as well as extend them. It is difficult to attach a price tag to this, but isn't all economic activity ultimately reducible to improving life in some perceived way? The famous quote (erroneously attributed to Emerson) that applies here is: "Build a better mousetrap and the world will beat a path to your door." This remains true during good or hard times. All that "door traffic" is lucrative, since people reward things of value. Investors that acquire ownership positions in the builders of better mousetraps stand to reap hefty profits, whether in good times or bad. Just this week, for example, IBM's global research labs revealed a new semiconductor technology that combines current electronic computing technology with optical technology. Optical circuitry, also called photonics, uses pulses of light, instead of electrons, to work. Photonic circuit elements can accomplish the same tasks as electronic ones while being smaller and faster. Power consumption could also be reduced to a fraction of what an equivalent electronic computer requires. Called CMOS Integrated Silicon Nanophotonics, IBM's tech would increase the processing speeds of the fastest computers from petascale to exascale. Petascale computers, which are currently the world's fastest supercomputers, can execute instructions at the rate of multiple petaflops (a quadrillion floating point operations per second). For example, China's current record holder, Tianhe-1, can do slightly more than 2.5 petaflops. Exascale computers, on the other hand, would be 1,000 times faster than that. We've already seen photonics revolutionize telecommunications over the last several decades. If you are reading this alert online, the data was delivered to you via fiber-optic links over large segments of the delivery route. We wouldn't have the modern Internet without this early photonics application. Just as recently as last December, exascale supercomputers were not expected for another eight years. IBM, however, says that the new technology will enable it to up the ante and ship out the first exascale chips in five years. This advancement is partly because IBM has figured out how to build integrated electronic/photonic circuits using conventional fabrication technology. Both types of circuits can be built on a chip at the same time. The recent eight-year estimate may prove to be just another case of underestimating the acceleration of technological change! Regards, Ray Blanco, for The Daily Reckoning Joel's Note: There is no doubt that Ray and Technology Profits Confidential co-editor, Patrick Cox, have some portfolio game-changers in their arsenal. For a full rundown of what they see as the next "disruptive" technological advancement, check out their latest video presentation, here. Bill Bonner One Word of Advice For Those Playing the Australian Boom Bill Bonner We should have more thoughts. But to tell you the truth, many of our thoughts went out of our head on our recent round-the-world trip. You need constant air pressure in order to maintain thoughts. And regular hours. Start getting up at midnight and going to bed at noon; thoughts have a way of disappearing by late afternoon. If they were ever there in the first place. One thought that disappeared somewhere over the pacific was this: The suntanned country must be close to getting burnt. Australia is booming. Prices are high. It cost $38 for breakfast in the Crown Towers hotel. Even so, you could have only one cup of café latte. You'd have to pay extra for another one. Our total bill for 3 nights was over $2,000. Impossible? Well, we thought so too. But when you throw in a bit of laundry...transfer from the airport...and breakfast for a friend, not to mention a consumption tax of $184, you end up over 2,000 bucks - without even a single dirty movie. The boom has been going on Down Under for the last 19 years. Not even the Great Correction is stopping it. Each year, it sells more dirt to Asia... from 40% of its exports 10 years ago to 72% today. It should probably just sell all of Western Australia to the Asians and be done with it. Meanwhile, the Ozzies enjoy their boom...raise their glasses...and throw raw meat on the barbie. Our colleague's house in Melbourne has risen 200% in price since we sent her there four years ago. And it's still going up. Converted shipping containers, transformed into mobile homes, sell for as much as $1 million. And truck drivers in the mining areas earn more than $100,000 a year. How long can this go on? We don't know. But our advice to our colleague was simple enough: "Sell!" *** From The Daily Bell: The problem with where America is now is that the country has been built on one lie after another for the past decade and the lies show no signs of slowing down. *** And here's the Bloomberg report on the tax deal. As you will see, Congress will do "whatever it takes" to continue spending money it doesn't have, including ignoring a law it passed last February: Congressional Democrats and Republicans are preparing to set aside their budget constraints as they negotiate the extension of income tax cuts scheduled to expire this month Their plans to declare a budget emergency as they approve the extension of tax cuts will override a "pay-as-you-go" law that was structured to limit Congress's ability to finance higher spending or tax relief by expanding the budget deficit. Extending all income-tax rates for two years, along with renewal of business tax breaks, relief from the alternative minimum tax and other moves such as expanded unemployment insurance could add about $750 billion to the deficit over the next decade, about $300 billion of which is beyond the deficit-expansion which the "pay-as-you-go" law would allow. For all the campaign-trail rhetoric about deficit reduction and recent attention focused on a bipartisan fiscal commission, Republicans and Democrats alike say the so-called "paygo" law won't be a procedural or political obstacle to extending all of the tax cuts without offsets in spending. The paygo law, signed by President Barack Obama on Feb. 12, generally requires that tax cuts or increases in mandatory spending be offset by spending reductions or revenue-raising measures. The law allows Congress to exempt about $1.5 trillion if needed to extend many of the Bush-era tax cuts. "That paygo law is just used to increase taxes," said Senator Orrin Hatch of Utah, who is in line to become the top Republican on the Finance Committee next year. "It doesn't make a hill of beans what the difference is as far as cutting back on spending and the overregulation that these Democrats have brought to this country." 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 A Report on the Tax Deal Effects The news yesterday was all about the tax deal. Did President Obama drop the ball completely? He was against extending the tax cuts. How come he caved in? Will he alienate his voter base? Or did he just pull a fast one on the Republicans? The tax cuts/unemployment benefit extension deal is a kind of “stealth stimulus,” say some commentators. Worlds Apart: A Firsthand Look at Emerging Market Growth Betting on Gold a Bet Against Currency Management High Long Bond Yield Good News for Gold Holders The Financial Times brought up the interesting point that because bond prices are so insanely high (making bond yields so preposterously low), a one-percent change in yields would negatively impact the prices of bonds much more than a one-percent change if bond yields were higher, which I assume means in the normal 3-6% range. Bernanke Ignores 4,500 Years of Failed Monetary Policy What Happens When Currencies Go Bust? Dr. Ron Paul Takes Over Chair of Domestic Monetary Policy, Including Fed Oversight Today it’s been announced that Congressman Dr. Ron Paul (R-TX) will become Chairman of the Domestic Monetary Policy House Subcommittee in 2011. If ever the US could benefit from a turning point in monetary policy it’s now. This is one of Congress’ most relevant entities for supervising that work, as a component of the overall House Financial Services Committee... Congress Growing up, Putting Away Childish Things... Sort Of The Municipal Bond Pitch: “What You’re Giving Me is Pure Bulls**t” 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