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The Daily Reckoning Weekend Edition Saturday, March 5, 2011 Buenos Aires, Argentina ------------------------------------------------------- The myriad holes in the USS Economy... The Feds keep the punch flowing as the party winds down... Plus, all the past week's reckonings for you to enjoy in the comfort of your own home... ------------------------------------------------------- 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. --------------------------------------------------------- Joel Bowman, checking in from Buenos Aires, Argentina... Poor Mr. Obama. The man who ran on a campaign promise of "change," is striving to achieve his stated goal by implementing a slew of conspicuously "same" policies, one after the other. Admittedly, your editor doesn't know much about drafting empty campaign promises, but he suspects that two sames don't make a change. We'll see. When Captain Obama first took over at the helm of The Republic, there were plenty of leaks assailing his once-formidable ship. There was an Iraq-sized hole on the starboard side, an Afghanistan-sized breach port side. Both were taking on water...fast. Up on the quarterdeck weighed a budget deficit that seemed to grow larger every time the vessel sank beneath the wavelengths. And on the main deck, unfunded liabilities piled up, reaching higher even than the poop. Needless to say, it doesn't take a sailor to know what that means. Now, barely half way through his maiden voyage, Captain Obama sees the ocean cascading in from starboard and port, the quarter deck sinking below the horizon and unfunded liabilities, now towering above the main mast, threatening to capsize the entire vessel. Meanwhile, down in the galleys, the captain's "best" oarsmen are busy drilling their own holes in the ship's hull. "States from coast to coast are facing budget shortfalls of a magnitude heretofore unseen, unfathomable, even," your editor observed in a recent reckoning. "More than 40 states are in the red for a combined budget shortfall of $125 billion for fiscal year 2012. California is the worst, with a $25.4 billion hole to fill, more than seven times Wisconsin's gap. Illinois comes in next with a $15 billion shortfall, followed by Texas with $13.4 billion, New Jersey at $10.5 billion and New York at $9 billion." It is no surprise then, that talk of mutiny can be heard from bow to stern. Some folks are even beginning to wonder if they will ever see land again. With so many leaks to plug, trying to determine which state budget hole deserves the biggest finger is a tough call. As far as total debt goes, California and New York remain by far the biggest problems. But when it comes to debt/GDP ratios, Rhode Island and Massachusetts begin to look more ominous. Then there's debt per capita, unfunded liability rankings, projected 2012 budget shortfalls and a slew of other factors to consider. Your editors have no idea which state will be the first to take a long walk off a short plank...but that won't stop us from taking a few guesses. We've been testing the waters by asking readers to submit their own anecdotal observations of governmental waste in their own state. It's all part of this year's Daily Reckoning Financial Darwin Awards: The State Edition. In short, we wanted to know which state has taken the most earnest steps toward insolvency during the past year. Which states are nearing financial extinction? Which among them are already walking dead? After carefully considering the nominations, we've (naturally) selected a list of ten finalists. In alphabetical order, the contenders for this year's Daily Reckoning Financial Darwin Award champion are (drum roll please...): California, Connecticut, Illinois, Louisiana, Massachusetts, Mississippi, New Jersey, New York, Ohio and Wisconsin. Five of these tar pit-bound states will be lucky enough to earn a featured spot in next week's Daily Reckonings. We'll begin with fifth place on Monday and count down, through runners-up and special mentions, to the grand champion on Friday. Meanwhile, if you happen to reside in one of the above states and would like to share with us a comment or two about money-wasting policies and idiocies going on in your own backyard, you can write to us here: joel@dailyreckoning.com ------------------------------------------------------- WARNING: This is Controversial. It Offends "Gloom and Doomers" Here's why it's NOT the end of America... Shocking new presentation reveals epic opportunities - viewer discretion advised for thin-skinned fear mongers. Watch the presentation right here. ------------------------------------------------------- A Curious Divergence by Bill Bonner Waterford, Ireland This could be important: the dollar has NOT gained from the unrest in the Arab nations. People no longer seem to see the dollar as a haven of safety. Instead, they turn to gold... Watch this space. Because now, both good news and bad news send gold higher. Smart central banks are buying gold. Smart investors are buying gold. Smart businesses and hedge fund managers are buying gold. The smart money is buying gold. But the dumb money - which is most of it - is still against gold. It doesn't understand that monetary systems are temporary...that they ALL fall apart eventually...and that, when they do, people turn back to real money - gold. Sooner or later, the dumb money will catch on too. We are probably still years away. (Though it is impossible to know for sure...) One thing we know already is that the dollar and gold parted ways last summer, right about the time Ben Bernanke stood before the Grand Tetons at Jackson Hole and announced his grand design to continue debasing the dollar until something good happened. William McChesney Martin, Fed chief during the Eisenhower years, used to say that the Fed's job was to "take away the punchbowl" when the party started to get out of hand. Times have changed. Now, the Fed has no intention of taking away the punchbowl. It's just running out to the liquor store to buy more gin! What's changed? Well, a lot of things. But one of them is simple. The economy of the Eisenhower years was a healthy economy. The party could get out of hand then. Because it was a real party. There was something to celebrate. The US made things and sold them at a profit. Wages rose. With rising incomes came increasing purchasing power...which gave US industry more customers...with more money to spend. Now, we've entered a new phase. The party's a flop. It's a fraud. A bunch of stuffed-shirt zombies are standing around with drinks in their hands. Listening to awful music. Talking a line of guff. And no one is listening. The largest group of consumers - the boomers - were born in the Eisenhower years. Now they're retiring. They'll no longer be contributing to the nation's wealth. They'll be subtracting from it...spending their savings...and looking to the next generation to provide healthcare and Social Security payments. And what has become of US industry? It is getting better, say the papers. But it is only a shell of its former self...only able to compete in certain narrow areas. The Chinese make more cars. The Germans make better cars. And the Indians make cheaper cars. What's left to make? Cars "Made in America." General Motors, the world's best, biggest, and more admired corporation when Ike and Dick were still clicking, went heavily into the finance business during the Clinton administration. Then it went broke...and got nationalized. And America's top graduates too...shifted from industry in the '50s, to marketing in the '60s...to advertising in the '70s...to tax accounting in the '80s...to investing in the '90s and financing in the '00s. And now the biggest group of them is getting ready to knock off...to retire...to enjoy the good life... But wait. How can they enjoy the good life? They don't have any money? Remember those numbers we cited last week? Only one in 10 - or something like that - has enough money in his 401k to permit him to retire in the style to which he's become accustomed. So what's he going to do? Let us be the first to tell you: his standard of living is going to go down. And not just retirees...but working Americans too... Why? That's what happens when you borrow too much. You have to pay it back somehow. Most likely Americans will see their incomes and accumulated wealth fall along with the dollar. Yesterday, we reported a Wall Street Journal opinion that the dollar would fall 20% as it ceased being the world's only reserve currency. That alone would wipe out a fifth of Americans' global purchasing power. But it could be much more. Just wait. The trap only chaffs now. Wait until it digs into the flesh...and then the bone. The more the feds struggle against it, the tighter the trap becomes. They run budget deficits. They print money. They bailout...and lend money below the rate of consumer price inflation. Of course, it's not just Americans. The US, Britain, Ireland...and much of the rest of the world...are all in a Great Correction. Their standards of living are going to be corrected... ..lowered, that is. Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- From Hulbert Financial Digest's Best-Performing Newsletter Advisory of the last 10 years...Comes... The New OIL WAR and Why Iran Threatens Your Money... According to Byron King's new presentation Hezbollah terrorists, militant Muslims and Iran's crackpot leader could be planning the deadliest surprise threat to your money and livelihood this coming year. Yet nobody in the Pentagon will talk about it, and no one in the White House has a clue. Thankfully Byron's taking action and is sharing several ways for you to take to protect yourself against the epic financial crisis ahead... Click here to watch Byron's value-packed presentation now. ALSO THIS WEEK in The Daily Reckoning... Higher Inflation is on the Way By Charles Kadlec The stakes have seldom been higher. With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s. Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt. Yet, failure to act in a timely basis will lead to an even greater crisis. Gold, the States, and Federal Monetary Policy By Ralph Benko Why are so many state legislators beginning to call for issuance of a form of gold money? The Constitution prohibits states from coining money but allows them to make "gold and silver Coin a Tender in Payment of Debts." By prohibiting everything except "gold and silver Coin" the Constitution clearly considers gold and silver coinage to be legitimate, no matter who issues it. Outside Day Reversals and the Return of the Housing Market By Eric Fry Laguna Beach, California The Dow Jones Industrial Average tumbled 168 points yesterday to 12,058. But the Blue Chip index did not merely tumble; it sustained "technical damage," according to the folks who place credence in stock price charts... The "risk on" trade is coming off very quickly. Why You Should Buy an SFHRP! By Eric Fry Laguna Beach, California What is an SFHRP? It is an out-of-favor asset class that has attracted the attention of David Ackman, a hedge fund manager with a fondness for contrarian investments. "The best investments we have made are the ones no one else would touch," Ackman explains. That's why he's so hot on SFHRPs. Houses Love Inflation By Eric J. Fry Laguna Beach, California Inflation is not the only reason to risk diving back into the housing market, but it may be the best reason. John Paulson agrees with this logic. Paulson is the hedge fund manager who placed various negative bets on various mortgage-backed securities during 2007 and early 2008. As these securities plummeted in value during the crisis of 2008, Paulson became a multi-billionaire...and a celebrity. ------------------------------------------------------- The Weekly Endnote: If you aren't unlucky enough to reside in one of this year'sDaily Reckoning Financial Darwin Award state finalists, don't despair. We'll be sure to sneak in a few special mentions for award-winning acts of stupidity during the final rounds. Again, if you want to drop us a line, do so at the address below. Until next time... Cheers, Joel Bowman Managing Editor 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 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?"

AGORA Financial Resources: The Daily Reckoning Is: Economics & Politics Crisis & Opportunity Gold, Oil & Energy Growth, Tech & Medical Options Investing Founder: Bill Bonner Editorial Dir: Addison Wiggin Publisher: Eric Fry Managing Ed.: Joel Bowman Web Ed.: Greg Kadajski About The Daily Reckoning: Now in its 10th anniversary 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. For additional articles and commentary follow The Daily Reckoning on Twitter and Facebook.