The difference between better and best is not a matter of opinion. At its absolute highest levels of quality, American Silver Eagles can achieve incredible values — values up to $5,300! But remember: it’s all about quality. And the best of the best are those certified as absolute perfect MS70. I have secured coins from the very FIRST RELEASE of the 2012 Silver Eagles in MS70 condition — but this first release won’t last long, especially at a price of only $99... that’s mere pocket change! When we hear people talk about the “tale of two economies,” we expect to find them referring to the Wall Street vs. Main Street match up. An important one, to be sure. Or maybe they’re comparing the economies of two different countries or regions; one healthy, the other moribund. The “developed vs. developing” comparison, for example, is a common one. Or maybe it’s private vs. public, that raging debate between the forces of capitalistic enterprise and socialistic control. The main problem with the latter being, as history has shown, that you eventually run out of the former. All of these are, in their own context, worthy topics for discussion. We’ve visited them many times before in these very pages, and will likely do so again. But what about the economy nobody talks about? That giant, $10 trillion economy currently employing half of all the workers in the world? It’s unregulated, unlicensed, untaxed and, largely, unnoticed by the mainstream press. We touched on this earlier in the week. More below...but first, the markets... Investors would have done well to go fishing yesterday. Stocks were flat as a mill pond, ending the session more or less where they began. The major indexes in the U.S. are sitting pretty around a 5-month high. As Fellow Reckoners know, the world has been saved by central bankers, politicians and Ivy League geniuses. In the frightful days of 2008, we were told the global economy was teetering on the “edge of the abyss.” If we didn’t let these brave men and women do “whatever is necessary,” we...gulp... “might not have an economy in the morning.” Luckily, the aforementioned heroes and heroines filled in that abyss with trillions of dollars worth of paper money. So we’re all good. Nothing to worry about there. Hmm... Alrighty then, moving on... Gold, like stocks, barely budged yesterday. Last we looked, an ounce traded for roughly 1,640 government-issued, $1 I.O.U.s. As usual, we favor trading the government’s liability notes for the Midas metal, which, contrarily, represents the liability of no man (or thieving, politicking collection thereof). Crude oil, meanwhile, lost about a buck a barrel. Nothing major in the news between Iran and the U.S. crossed our desk, not that we were looking very closely. No, the war drums were apparently between beats yesterday. If the whole spat fizzles out tomorrow (doubtful), we expect prices to continue tracing a long, steady path higher in accordance with unfolding supply/demand dynamics. But if the Strait of Hormuz gets choked off by a sudden burst of chest-thumping misadventurism (from either side), we won’t be expecting a miraculous, military-issued Heimlich Maneuver to restore vital supply lines overnight. Prices will likely skyrocket. So that’s what’s up with the “seen” market. Now back to the “unseen,” the market Robert Neuwirth, author of the book Stealth of Nations: The Global Rise of the Informal Economy, refers to as “System D.” (We provided a brief intro to this in Tuesday’s column.) In a non regulation-sized nutshell, System D refers to the world’s unregulated, non state-sanctioned economy. And it is, in many ways, where the real action is. One of our Fellow Reckoners, responding to the above introduction, offered the following observations: “Subcontractors work for cash. This lessens taxes, workmen’s comp, insurance, and withholding costs. Many shops run cash sales without sales taxes, like camera shops at the wharves in San Francisco. Farmers’ markets sell food without overhead or taxes. This will all be increasing geometrically...” To be sure, this is the real wild west. A kind of frontier market where innovation flourishes and the natural, evolutionary forces of creative destruction are left to sheriff the town, themselves ungoverned by the arbitrary whim of world-improvers and their insufferable ilk. As such, the system is not without its failures. But nor is it without allure. Continues our reader: “More and more people will be tempted to take the risk of government action against them, because it is better than starving, and the more people who work outside the system, the harder it will be for the government to force compliance with the myriad regulations and taxes which are a barrier to entry.” Seems a valid point to us. Think of how much more competitive individuals working in the area between the Atlantic and the Pacific Oceans (say) would be if they were allowed to conduct business with whomsoever they wished and on their own, mutually agreed-upon terms. Millions of job-seekers could be put to work immediately. The state-sponsored unemployment problem would disappear overnight. It’s not as if there is no work to be done, after all. This line of thinking begs the obvious question: if one could voluntarily contract work between two or more willing individuals, why involve the government at all? This is the basic concept behind System D. The state, as we know, is nothing but the ultimate, glorified middle man. And costly, too! For the benefit of having this “silent partner” - who, by the way, contributes absolutely zip to the start up of your business, neither in time, nor capital, nor to the ongoing production of it - you will be charged roughly half of your total profits. Moreover, you will be expected to act as the unpaid accountant and tax collector for this partner, who demands that you withhold wages from your employees so that it may confiscate them later. Who would voluntarily agree to such demeaning, demoralizing deal? As it turns out, the state itself knows exactly how many people would “opt” for its services if actually given the freedom to choose. How do we know this? The actions of the state tell us so, and clearly. If you know somebody wants to do business with you, if you are confident you are offering a valuable good or service at a competitive price, do you hold a gun to your potential customer’s head? Of course not. But that’s exactly what the state does when “offering” its “services.” It says, without apology: Does that sound like a confident businessman striving to provide the best service for his customers? Hardly. This is more like the behaviour of a jealous, insecure megalomaniac. As far as “silent” partners go, the state is more screaming, bellowing psychopath than hands-off onlooker. And, we hasten to add, it is armed to the teeth. All in all, it’s a nasty affair this statism. Which is why System D is so very appealing for the millions of individuals who, despite the threat of the state and its various means of violence and coercion, decide to do business without its foul, unwanted blessing anyway. Now, before readers disparage the “black market scourge” as merely a bunch of crims, cons and bloodsucking shysters lurking on in the shadows of civil society, allow us to consider the true nature of its participants. They could be anyone from a 4-year old lemonade vendor who decides to set up camp on mom and dad’s front lawn without the necessary government permit, to a peer-2-peer cyber crypto-currency currently enabling millions of dollars worth of transactions between freely-associating individuals around the world. And any of the brave, freedom-loving individuals in between. Simply, it consists of people who don’t hold guns to other people’s heads in or der to conduct business with them. Besides all that, if its crims, cons and bloodsucking shysters that are cause for concern, one need look no further than Washington D.C. and the various capital cities around the world where the rest of the guns-for-hire reside in taxpayer-provided comfort and leisure. To furnish but one recent example: In the “Land of the Free, Home of the Brave”, a Nobel Peace Prize-winning president and the “Leader of the Free World,” who also happens to be an expert in constitutional law and who spent a dozen years lecturing on the subject at the University of Chicago Law School, signed into law the National Defense Authorization Act, thereby granting himself - and future presidents - permission to incarcerate, indefinitely and without their recourse to counsel, trial or due process, any American citizen he or she deems, unilaterally, to be in need of detention...Great Writ be damned. In a deafening act of bi-partisanship, the bill arrived on the president’s desk as passed by a “deeply divided” Congress...with overwhelming majorities in both the House and the Senate. Arguing that free markets won’t work because there will still exist exactly the kind of morally bankrupt persons currently enjoying institutionalized positions of power is circular logic at its finest. Free markets don’t promise to get rid of these worms. They just promise not to provide an unchallengeable framework through which they may be promoted to the highest seats in the land...then gifted your tax slave number in the one hand and the nuclear codes in the other. In the 21st Century, a new dawn of medicine has emerged that could restore the sight of 10 million people worldwide. It’s a medical breakthrough that is unprecedented in human history. In fact, this amazing technology could eventually improve... and extend... every life of every person on earth. And one tiny California Company, priced under 80 cents per stock, is at the forefront of this revolutionary medical treatment. Click here to get the full details on this explosive penny stock that could significantly advance the field of regenerative medicine — and possibly make you ridiculously rich. “Ow!” I yelled. It felt as if a sharp needle had plunged into my leg. I looked down, but found nothing. “Something bit me...” I muttered. As I brushed my leg, I felt another painful sting, this one on my pinkie finger. “Ow! What was that!?” Now with pinkie and leg throbbing, I could still see nothing. My wife, Carol, was standing nearby. “I know what it is,” she said. I froze. Later, she told me she didn’t want to say what it was so I wouldn’t freak out and she could flick it off. But when I gazed down at my chest and saw this nasty-looking scorpion making his way up toward my neck as if to finish the job, I let out a yell and brushed the thing off... and improbably, it landed right on to my wife’s hip. She, more calmly, flicked it off and killed it with a flip-flop. We were in Nicaragua with the family for the holidays. Fortunately, the sting, while painful, is otherwise harmless. Well, that’s frontier markets for you. There are great reasons to visit Nicaragua: pristine beaches that you will have almost to yourself, the charming architecture of its old colonial cities such as Granada, the inexpensive food and lodging and much more. But it’s still a frontier market with bad roads, unreliable power and a large poor population. There are great opportunities, but also the potential for painful setbacks. The sentiment, of course, applies to all markets — and life in general. Welcome to 2012. What opportunities and surprises can we look for in the year ahead? Some thoughts... Total federal outlays rise again. This one seems unstoppable. The U.S. government will spend more money in 2012 than in 2011, despite everything. It’s incredible to think that as recently as 2007, federal outlays totaled $2.7 trillion. In 2012, we’re looking at $3.6 trillion! This means the government will likely have to finance an increasingly larger deficit. And why not? If investors are going to be so foolish as to lend the government money for 10-year terms at a rate of 2% or so, it’s like free money. The problem is that interest rates don’t stay low forever and investors don’t stay dumb forever. Just ask certain members of the EU. When doubts surface about your creditworthiness, rates don’t just slowly crawl upward. They jump — and then it’s “game over” pretty quickly. Will 2012 finally be the year that marks the beginning of the end of the long bull market in Treasuries? I think so. Multigenerational households in the U.S. rise. People are living longer and outliving their financial resources. The financial crisis of 2008 and the lackluster stock market of the last decade haven’t helped. Plus, medical bills have soared. So where do people turn for help? Family. As The Wall Street Journal reports, about 39% of adults with parents 65 years and older say they’ve given them financial aid in the past year. And more and more households are becoming multigenerational households. This is a return to an older order. In 1900, 57% of adults aged 65 and older lived with relatives. I think this is a long-term trend in the making — with unclear investment implications. But it seems a fundamental shift is taking place in the American household. I’d bet the number of multigenerational households rises again in 2012. The curtain falls on the Chavez regime in Venezuela. The year 2011 was a bad year for dictators of all sorts. I think 2012 will also topple a regime or two. At the top of my list is Hugo Chavez. Venezuela will hold a presidential election in 2012. Meanwhile, the quality of life in Venezuela continues to deteriorate. There are reports of 30,000 people living in shelters awaiting Chavez to deliver on promised homes. There are shortages of basic goods, made worse by a 27% inflation rate. All the while, Chavez is battling poor health. The election will be the spark that ignites the uprising that will end his regime. The stock market advances. Why? Because it seems improbable, and the market often does what is least expected. It’s easy to draw up an ugly scenario for 2012, mostly focused on the EU imploding. It’s harder to imagine the market having a good year, which is exactly why it will have one. Now, I have no faith in market calls, as you know. So I make this prediction somewhat tongue-in-cheek. In truth, I don’t waste time thinking about what the market is going to do next. It’s unpredictable, and I’m a long-term investor anyway. Lots of folks will try to divine market direction using all kinds of flawed tools. For instance, I read over the weekend that the S&P 500 (going back to 1928) has had only nine years in which the return was plus or minus 5%. The average return the following year was 26.3%. Only once did the market fall in value the following year. That was in 1940, the year after Germany invaded Poland. Even then, the market fell only 9.8%. The positive years ranged from returns of 14.3 to52.6%. This, of course, led our market seer toward optimism for 2012. These kinds of things are interesting but mean nothing. The market is not bound by its own history. Mr. Market does not pull cards from a deck of defined possibilities. It can pull five kings. It can grab two aces of spades. It can draw a card we’ve never seen before. Keep that in mind and stay focused on what you own, not on where the market might go. Commodities rebound a bit, but don’t top 2011 highs. It was a bad year for commodities. Most fell, as shown by the Dow Jones-UBS Commodity Index. I think we’ll see some rebound, but an unfolding recession in the EU will be too much to overcome, and the index won’t top its 2011 highs. This doesn’t mean you can’t make money in commodities. If prices for oil stay at $100 per barrel, there will be plenty of oil companies and services stocks that will do quite well. Gold stocks have a great year. The market hated gold stocks in 2011, especially the juniors. The MarketVectors Junior Gold Miners ETF (GDXJ) is made up of small mining stocks. It fell 38% in 2011. This, despite gold itself finishing the year modestly up. The market is offering low multiples on gold stocks right now. Price-to-cash-flow multiples, for instance, linger near generational lows. Gold doesn’t have to go up for these stocks to make a lot of money. However, I think gold will make another run at $2,000 an ounce in 2012 — and exceed it. All the factors that drove gold to new highs in 2011 are still in place. The world’s monetary system is still a mess. And its leading brand, the U.S. dollar, is not well. Combine a rising gold price with low multiples and you have a kind of financial rocket fuel. Regards, Chris Mayer Joel’s Note: Chris’ Mayer’s Special Situations research letter is considered mandatory reading ’round here at (the admittedly diffuse) Daily Reckoning H.Q. His next investor alert is due out tomorrow. Get yourself on the list with this one-page sigh-up form and enjoy 60 days to test drive Chris’ service, risk-free. Worst case scenario, you receive tomorrow’s letter and decide it’s not for you. Best case, you’ve discovered a valuable partner to help guide you through the market tumult ahead. Either way, it takes two minutes to get onboard. Do it here. Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as the story of our era. Not much to report on in the markets yesterday. So let’s move on... What are the big risks in 2012? We can think of several. But the World Economic Forum only sees two worth mentioning — too many deficits and too great a difference between rich and poor. The New York Times reports: Severe income disparity and chronic fiscal imbalances are the top two risks facing business leaders and policy makers this year and over the next decade, the World Economic Forum said in a report Wednesday. If these problems are not addressed, a result could be a “dystopian future for much of humanity,” according to the report, which was published in preparation for the group’s annual meeting of business leaders, policy makers and academics in Davos, Switzerland, Jan. 25 to 29. Signs of discontent with growing income gaps and economic problems stemming from the global debt crisis were already on the rise in 2011, as evidenced by the Occupy movement that began on Wall Street and quickly spread to other cities in the United States and around the world. Yet that might be only the beginning. Of course, there are others with worries of their own. NYT continues: While scientists can predict the probability — if not the exact timing or scale — of certain natural disasters, the ability to read a crystal ball may be more helpful than complex calculations in determining risks stemming from human events. Leading many forecasters’ worries is an escalation of tensions between the United States and Iran. In addition to political turmoil, military action between the United States — or Israel — and Iran could cause a sharp increase in oil prices, especially if the Strait of Hormuz were blocked. Ed Yardeni, an independent economist in New York, lists this as one of his “four horsemen of the apocalypse” for 2012. The others, cited in a note to clients, are: a severe global credit squeeze stemming from the crisis in the euro zone; social upheaval in China and India; and a severe global recession emanating from Europe. Graham Hutchings, director of analysis at Oxford Analytica, adds to these the uncertainty caused by elections in a number of countries, including France, Russia and the United States, as well as a leadership transition in China. So you see, dear reader, a lot could go wrong in 2012. How do you protect yourself? “Find the investment premise that is false and bet against it,” was George Soros’ formula. And right now, the biggest premise in the financial world is that US dollar-denominated Treasury debt...and to a lesser extent, US stocks...represent the safest investments you can make. This idea is so popular it could take American debt and equities higher in 2012. People flee Europe and the Emerging Markets for the safety of US assets. But the premise beneath these investments is false. Neither US debt nor US equities are becoming more valuable. They’re losing value. Americans are becoming poorer. They have not had a wage increase since 1974. Only by working more hours per household...and going further into debt...were they able to increase their standards of living. But now, with unemployment over 8% and de-leveraging taking place (admittedly, in fits and starts), they will have to spend less. Sooner or later, investors will have to recognize it. “They only way for the European [and American] economies to recover is to admit that they are not poor and live within their means,” writes Mahathir Mohamad, former prime minister of Malaysia, in the Financial Times. Then, they must go back to doing real business, ie to produce goods and sell services. Wages, bonuses and other perks have to be lowered to become competitive. ...There can be no return to the status quo ante.” No, dear reader, there’s no going back. And every step you take going forward you risk stepping onto a landmine or into a trap. But one thing is almost a certainty. When we finally reach our destination, US stocks and bonds will be lower. And more thoughts... What are we doing in South Africa? Checking on business... How’s business? Not bad. Johannesburg seems to be booming. The “New South Africa” seems to work...for now. But if our theory of government is correct, it is probably just a matter of time before the central authorities ruin it. Remember, government is not an enlightened organization designed to promote public welfare. It is barbaric, uncivilized force...military and police power put to the service of the insiders who control it. Yes, there are constraints on the way the insiders use their power. There are ‘checks and balances,’ built into the constitution, for example. And there are cultural norms and traditional prohibitions. But eventually, the norms and traditions wear off, like painkillers. And then, the pain of raw government begins again. *** How do you get to South Africa? Here’s how to simulate the journey in your basement or garage...and save $5,000. First, stand around for about two hours. Take off your clothes, just as you would as you pass through security. Then, sit down in a fairly comfortable, reclining chair. Turn on a loud furnace or vacuum cleaner. Besides you are two strangers, one on either side. One is immensely fat. The other has a bad cough. Arrange for someone to serve you a bad meal while you are seated. Have a cheap bottle of wine on hand for refreshment. When you are finished eating, turn out the light. Stay seated for the next 8 hours. It is now about 3 AM. Set your alarm to wake up. Turn the lights on. Stay awake (while the plane is refueling in Dakar) for about an hour. Then, you may put your seat back again. Stay in your seat for another 8 hours. Voila, you are there. *** Tomorrow...more ‘crisis in capitalism’ coverage. Regards, Bill Bonner
The Daily Reckoning U.S. EditionHome . Archives . Unsubscribe 
The Daily Reckoning | Thursday, January 12, 2012
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Markets Seen and Unseen “...it was the age of wisdom, it was the age of foolishness...”
~ C. Dickens, 1859.
Reporting from Buenos Aires, Argentina...
Joel Bowman You will use our currency, and no other, or we will label you a “domestic terrorist” and throw you in jail. You will carry our identifying documents, and no others, or we will not permit you to leave these boundaries (as defined by our wars with other states). You will surrender a certain portion of your private property to us annually, or we will lock you up. And if you try to escape our cage, you will be shot.
10 Million Blind Could Regain Sight The Daily Reckoning Presents My Crystal Ball for 2012 
Chris Mayer
for The Daily ReckoningOnly 62 People Know Exactly Why These Four Companies
Could Change the WorldAnd now over to Bill Bonner with the rest of today’s reckoning from Johannesburg, South Africa... Careful Steps to Avoid
a “Dystopian Future”
Bill Bonner
for The Daily Reckoning
Thursday, 12 January 2012
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