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The Daily Reckoning Weekend Edition Saturday, April 30, 2011 Buenos Aires, Argentina -------------------------------------------------------- The problem with GDP...and then the real problem with GDP, Believing Bernanke and other potential investment pitfalls, Plus, all the past week's reckonings, archived for your golden, afternoon reading... -------------------------------------------------------- Congress Won't Admit This, The President Won't Talk About It... America could be standing on the verge of a severe economic stumble. Worse than 2007. Why? Find out all the details – and get SIX unique ways to protect yourself – right here. Hurry – what you're about to see disappears from the Internet on Sunday, May 1. -------------------------------------------------------- Joel Bowman, reporting from Buenos Aires, Argentina... It's a clumsy old thing, that all-knowing, all-seeing government. No matter how hard it (says it) tries to "fix" the problems of the world, to the extent that the state intervenes, things only seem to get worse. Let's start with the economy... This week we heard from Chairman Bernanke about how his "on sound footing" recovery (somehow, remarkably, standing atop unsound money) is beginning to falter. The recovery, says he, is now "moderate," requiring the Fed to maintain their historically low interest rates for "an extended period." More unsound money, in other words...designed to build a surer foundation on which to erect that ever-illusive recovery. So, are investors actually buying the Chairman's newspeak? At the very moment The Bernank was busy proclaiming his commitment to a "strong dollar policy," the dollar index hit a brand new, post-2008 recession low. Strange, no? What about precious metal investors? Are they betting on The Bernank? The price of gold says, emphatically, NO! An ounce of the anti-dollar metal this week hit $1,560...although, by the time you read this, it may have already moved higher. (Of course, for our purposes, it's more correct to say that the dollar actually slid to 1/1,560th an ounce of gold...but that's a tale for another day.) And what of those other anti-dollar investments? Silver is back up to $48 an ounce and crude (West Texas Intermediate) climbed back above $113 per barrel. Of course, Bernanke tells us this high price will be a temporary phenomenon. Yes...and spending money to get rich is a sound financial plan, too. No, Fellow Reckoner, the powers-that-be are not here to fix your problems and cure your ills. They're here to cause, induce and exacerbate them. They fiddle with this sector and stimulate with that one, trying to get the "machine" to correct its course. But every time they hit the accelerator, the wheels fall off and the engine stalls. Individual components seize up and cease to work. And so the wonks scratch their heads and go back to the same old drawing board. They fret that unemployment is too high or that the growth rate is slowing...and presume to know what to do about it. Take GDP, for example. As you might have seen, this rather meaningless "measurement" contracted during the first quarter of the year, down to 1.8% annualized from a 3.1% rate the previous quarter. It was the "worst" showing since last spring, the (thus far) height of the European debt debacle. Astute readers can already see here how the measurers and fiddlers have missed the point altogether. Then again, to our recollection, they've never displayed a shred of evidence that they grasped it in the first place. First of all, there is no "machine"...no "economy" of which to speak. Not in the sense they are expecting, anyway. There is no economy that isn't comprised of individuals and their reliably untamable, unforecastable, untinkerable aspirations and desires. As Frank Shostak, an adjunct scholar of the Mises Institute, puts it, "The GDP framework gives the impression that it is not the activities of individuals that produce goods and services, but something else outside these activities called the 'economy.' However, at no stage does the so-called 'economy' have a life of its own independent of individuals. The so-called economy is a metaphor – it doesn't exist." And thus is this fundamental flaw of the orderers' and meddlers' plans laid bare for all to see. They are tuning something that can't be tuned, trying to create demand – along with dollars – out of thin air, rather than allowing the market to respond to the wills and desires of its many millions of participants. This is their error, one F.A. Hayek so eloquently referred to as "The Fatal Conceit." And with that, we'll leave you with a bit of entertaining weekend viewing, courtesy of the good-humored people at econstories.tv Regards, Joel Bowman For The Daily Reckoning Joel's Note: If you want to add a copy of Hayek's indispensable book, The Fatal Conceit: The Errors of Socialism, feel free to make your way to lfb.org for a discounted copy. Here's a link. -------------------------------------------------------- KO's Cancer in 36 Hours! A little-known biotech company is making medical history...but with FDA fast track review status for their cancer treatment, this small company might not stay "little-known" for long... So you must move fast if you want to get in on the ground floor of what could be the biggest medical breakthrough in decades... Click here to learn more now. -------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... Go Long Material, Go Short Certified Idiots By Frederick Sheehan North Weymouth, Massachusetts Federal Reserve Chairman, Ben Bernanke, knows that his stock-market support operations are coming to an end, or a pause – time will tell. Propping up the stock market was an explicit objective of QE2. Quantitative Easing 2 (QE2), a process by which the New York Federal Reserve is buying $600 billion of US Treasury securities, is due to end in June. Classified as Permanent Open Market Operations (POMOs), the New York Fed dispatches about $6.5 to $8.5 billion into the banking system every day, as payment for 5- to 7-year Treasury notes. Chairman Bernanke wants the POMOs to continue, forever. A Review of Ron Paul's Liberty Defined By Gary Gibson Baltimore, Maryland Sometimes Ron Paul seems too good to be true. For decades he has championed the cause of liberty and sound monetary and geopolitical policy. He has done this in the very heart of the Leviathan state even as the federal government has accelerated its expansion in the postwar years. Further Dr. Paul has repeatedly presented his case in print in clear language. Liberty Defined is the latest timely addition to those efforts. Di-Worsification By Rob Marstrand Buenos Aires, Argentina Much as it feels good to get rich quick, the reality of successful financial investing is much less dramatic. It's about steady accumulation of profits. And profits on those profits, through the "power of compounding." But to make it all work, you also must avoid "ruinous losses." The Milkman Indicator By Chris Mayer Gaithersburg, Maryland Our family has a milkman. Yes, a milkman, just like in the old days. He comes every Friday and drops off a crate full of cold bottles of milk, along with tubs of yogurt and butter, cheeses and sometimes meats. You place your orders online, and the milkman brings it your doorstep, fresh from a local family-owned farm not far from where I live. I mention this because I got an interesting e-mail from the farm over the weekend, which I think sums up what we face in today's economy. Spend It Like You Stole It By Bill Bonner Baltimore, Maryland QE2 is ending in June. But globally, QE3 has already begun. As usual, Japan is the pacesetter. As temperatures rose at its Fukushima reactor so did Japan's monetary base–at the rate of 100% per week! What happens to all this new, hot money? No one knows, exactly. But today, at The Daily Reckoning, we have advice for everyone – central planners, politicians, and householders, too: if you have money, pretend you robbed a bank. -------------------------------------------------------- Finally! Here's the SECRET to Fast, Frequent Gains These fast gains can pop up in just days. In one recent test, 123 of 127 tracked moves produced winners. Watch this urgent briefing to see how you could start profiting for yourself as early as Wednesday. Click here to find out why this is so urgent... -------------------------------------------------------- The Weekly Endnote: Last week in this space, we queried our Fellow Reckoners as to their preferred non-dollar, or "ex-dollar," investment. "It could be," we wrote, "a foreign currency, precious metal, overseas land, whatever. Your theoretical investment ought to offer maximum protection against declines in the world's 'reserve' currency and maximum fitful nights of rest for your fellow reckoners." We asked. You responded. Submits Reckoner Tyler... I am wondering what you think about jewels as a substitute for dollar holdings. I have a friend in the jewelry business that recommends pink diamonds as a store of wealth in case of troubled times. She says her family has always kept a large portion of their wealth in these types of jewels because they hold their value (and increase in value) over time and they are easy to transport if you need to move them out of a country. You can put several hundred thousand dollars worth in a small pouch in your pocket. The law enforcement that will someday keep you from transporting cash, gold and silver will likely not say anything about a nice ring worth 300K or more. Apparently this type of jewelry is easily resold anywhere in the world. For people with substantial wealth this seems like a good approach to dollar decline protection – easily transported, easy to store, maintains or increases in value and is easy to resell. Writes Reckoner P.A.... I spent the last half hour gaping into space trying to come up with a clever answer to your "ex-dollar" investment project. Last year my inspired guess would have been rare metals but they are too tricky. Then I became enamored with uranium. The Japanese tsunami has left me (and too many others) shocked into rejection. Gold is great but not about to become a world monetary standard just yet. Perennially I return to a bag of currencies which you tamper with only when necessary, and a bit of gold. Barter items for financial melt down: Medicines; antibiotics and painkillers, carefully kept. AND CHOCOLATE. A huge stock of ingredients and the know-how of making superb chocolate. Hopefully this skill will ensure that you are valuable enough to keep thieves from bumping you off. This last idea is probably flawed. I can't fathom silver. Perhaps the investment guru's haven't been given the job of polishing it. Gold is incorruptible, beautiful and malleable, as well as everything a money should be. And finally this, from "fantasy bank robber" Steve... "A Real Penny Saved is a Real Penny Earned." – S.D. 1. Accumulate a ton or more of pennies from your local banks 2. Use a $500 dollar penny sorter to sort real 95% copper pennies (sorts 18,00 pennies an hour) 3. 20% of the pennies will be real (pre-1982) Return the copper plated fake zinc pennies to the bank and get a new batch to sort. Keep repeating this until all you have are real pennies with a melt value of 3 cents each (at $4.50 per lb. copper) 4. No commission expense. 5. No downside risk. 6. Wait for a Major War and sell your copper pennies on the black market for big bucks. I like to think of myself as a Bank Robber - and why do I rob banks? Like Willie Sutton says... "I rob banks because that's where the money is." Thanks again to all those who wrote in. This week's mini Group Research Project: What are you most worried about losing in the future...and how do you plan to protect it? Feel free to be as detailed as you like...something a little more than simply, "My land...and with a gun." (Even if that is your eventual plan.) Send your responses to the address below and, as always... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning