by Addison Wiggin – November 30, 2010

  • Say it ain’t so! Ireland not the end of the eurocrisis… gold hits euro record

  • Gold rallies in dollars, too… Alan Knuckman with a cautionary note

  • Housing double dip under way, and the chart that confirms it

  • How the federal wage freeze will make next to no difference to the national debt

  • Uncle Sam determined to improve your life, 2 inches at a time

It took a while… but the most clueless European is finally figuring out something the most clueless Americans have known for a year or two: They’ve been snookered.

Remember when Ben Bernanke told us that problems in the mortgage market were contained to the subprime sector? Then it became obvious they weren’t contained. But he promised they wouldn’t detonate the credit markets or take down major banks. And so on.

Europeans are living this right now, today. Leaders of the European Union assured them that problems in Greece would stay in Greece. Then the problems spread to Ireland. So EU leaders said if the Irish would just take a bailout, they’d come up with a plan to make sure nothing like this ever happened again.

This week, bond traders are calling their bluff. Yesterday, the yield on Spanish bonds grew from 5.21% to 5.46%. (It’s up again today, to 5.55%.)

Today, the yield on Italian bonds grew to 4.68%. The spread over similar German bonds — the benchmark of reliability — is its widest since 1997, when the euro was still a gleam in the eyes of central planners.

Credit default swaps on Irish debt, Portuguese debt, Spanish debt, Italian debt… they’ve all surged to record highs.

Thus, the euro has slid below $1.30 for the first time in two months. Not surprisingly, gold priced in euros hit a record of €1,059.

Priced in dollars, gold is looking pretty impressive too. The dollar index is merely firming up its position above 81… but gold has surged nearly $20, to $1,386. That’s within $40 of the record set just three weeks ago.

“With the recent bow wave of metal euphoria, there is still room for caution,” warns Resource Trader Alert editor Alan Knuckman — “especially when it comes to buying into the gold rally at these elevated levels.

”While metals may very well continue much higher, a recent half-page ad in a Chicago newspaper could be yet another indicator that a correction may be in order. The ad was looking to hire gold buyers, which must be in high demand these days.

“A painful lesson learned in the housing market has eerie similarities, including real estate values that were supposed to ‘always’ rise. That created a trillion-dollar industry, now mostly gone, in mortgages and realtors that made money off of a hyper bubble. The signs were there to be ignored.

”With unemployment the major financial issue of our time, a recruitment search for employees to give the often overemotional public money for scrap gold sends off common-sense alarms. It's something to keep an eye on, that's for sure.”

In the meantime, Alan is watching the metals market for his next big opportunity. So far this year, his readers have collected gold gains of 64%… 106%… 114%… and 221%. They’ve also collected silver gains of 84%… 100%… and 206%. If you want to be on board for Alan’s next big metals move, here’s where to go.

We’re getting the clearest view yet that a double-dip in housing is under way. The Case-Shiller home price index fell in September at double the pace the Street was expecting.

This is important because we now have data completely unsullied by the homebuyer tax credit. Buyers had until June 30 to close… and Case-Shiller is a three-month moving average.

With that in mind, let’s look at the data from a slightly different perspective than usual. The yellow line is keyed to the left side of the chart, which shows the raw index number. The red line is keyed to the right side of the chart, which shows the year-over-year change.

Two take-aways here: 1) For the better part of two years, home prices have bumped around near mid-2003 levels. 2) The year-over-year trend is not only falling, it’s returned to negative territory.

“While some of the bad numbers may reflect the end of the government’s tax incentive for first time homebuyers, there are other problems weighing on the housing market,” says S&P’s David Blitzer, belaboring the obvious.

Between the eurowoes and Case-Shiller, stocks are generally down today. Traders are taking what cheer they can from the Conference Board’s latest consumer confidence reading. It came in better than the Street expected.

Well, this ought to solve America’s whole fiscal mess in one fell swoop: President Obama wants to freeze federal salaries for the next two years.

Republicans are carping that they suggested the same thing months ago. Neither side is acknowledging a couple of basic facts…

  • This sudden onset of fiscal prudence comes only after the number of federal workers earning more than $150,000 a year grew tenfold in just five years

  • A two-year pay freeze would save $60 billion across the next 10 years. Considering the national debt is growing $4 billion a day, this is good for about 15 days of savings.

This is what it’s come to: Democrats and Republicans fighting over who gets credit for proposing something that will tide over Uncle Sam for 15 whole days. If it ever gets enacted. Which it probably won’t.

Meanwhile, as Uncle Sam makes symbolic gestures toward deficit reduction, it imposes huge new costs on local governments. Like new street signs.

Seriously. The new edition of the federal Manual on Uniform Traffic Control Devices — an 800-page tome — instructs local governments to…

  • Increase the lettering on street signs from 4 inches to 6 on all roads with speed limits above 25 miles an hour… by January 2012

  • Install signs with reflective lettering better seen at night… by January 2018

  • And whenever a sign is replaced, it must be in upper- and lowercase… immediately.

Milwaukee will have to spend $2 million to make this happen — double the city’s annual traffic control budget. Rural Dinwiddie County, Va., will spend $10 for every man, woman and child.

Something to keep in mind when you write your next property tax check…

“Is this Israeli-level airline security even a remote possibility in the U.S.?” a reader replies to a fellow reader who wrote in yesterday. “Definitely not, given the difference in volume of travelers! Get real.

“Your reader also 'profiles' possible bombers/terrorists yet leaves out completely the likes of those who perpetrated the Bali bombings and other terrorist events in Asia. Is this in itself the largest hole (send Asian bomber) through which terrorists can do damage on U.S. flights?

“I think the U.S. needs to stop being reactive and become more proactive… like learning how to get along in this world, and not as a bully.”

“El Al? Really?” writes another. “Ask yourself these questions; “Do you really feel safer since the passage of the Patriot Act?” Do fundamental violations of your rights (unreasonable searches — a la the Fourth Amendment) make you safe?

“I propose that you (the reader) are hiding what you really feel — you feel threatened. I damn sure know I feel threatened. How many law enforcement agencies does the U.S. have? Local police, local sheriffs, state police, FBI, DEA, ATF, ICE, Secret Service, U.S. Marshals, TSA: That’s 10 agencies in 10 seconds. How many more are there? How many more will be necessary before you feel safe?

“Similar to gun violence and gun-control laws, the solution is counterintuitive. If everyone, or at least a vast majority of Americans, carried a firearm, there wouldn't be any gun violence. Gun control laws adversely affect only law-abiding citizens.

“The answer is not more police agencies (more government). It is less government. Recall Thoreau’s motto from “Civil Disobedience”: That government is best which governs least.” If Thoreau felt that way in 1849, imagine what he would write today.”

“Why are fed police serious about airports but not serious about illegals/terrorists coming through our borders?

“What is the real agenda? We are not supposed to believe there is a conspiracy.”

The 5: We don’t know much about conspiracies, but we do find it interesting that one of the items on the lame-duck Congress’ agenda this week is something called the “DREAM Act.”

It’s geared toward the foreign-born children of illegal immigrants: They can apply for citizenship if they’ve lived here for at least five years since age 16, have no criminal record and complete two years of college… or two years of military service.

Clever way to ensure the United States can expand its Empire of Debt overseas without bringing back the draft, no?

Heck, once we exhaust the potential pool of illegals, we can offer a similar deal to indebted and jobless college grads — military service in exchange for student debt forgiveness.

“I don't appreciate your taste in humor,” writes a reader irked by our illustration of the Chinese and Russian abandonment of the dollar. “There is enough vulgar pictures that are in print and I don't expect it in a investment document. I would appreciate it if you would knock it off and stick to giving us information that is worthy.”

The 5: We notice you didn’t write in outrage at the cheesecake photos we used to illustrate our items about Eliot Spitzer’s former consort becoming a commodities broker, or how holiday sales of a certain Victoria’s Secret product could prove to be a leading economic indicator.

But a Photoshopped picture of a panda and a grizzly performing an unnatural act… No, that crosses the line. Interesting…


Dave Gonigam

The 5 Min. Forecast

P.S.: As the major stock indexes plunged 1% yesterday morning, Greg Guenthner told readers of Bulletin Board Elite to take profits. In a single day, they had the chance to collect gains of 44% (after just 42 days) and 100% (after just less than a year).

If you’d like to be on board for the next Elite recommendation, check this out.

P.P.S.: Addison is away today, convening his expert panel for a two-hour discussion today on Baltimore’s NPR affiliate, discussing this question: How can we recapture the spirit of entrepreneurship that made the U.S. “the most competitive economy in the world” for much of its history?

The discussion should be archived and available as a podcast by the time you read this. Here’s where you can listen in.


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