Bill is Back in Contact: A Return to Bubble Land...

Bill Bonner - Thu 05 Nov, 2009

The rise in gold comes as India’s central bank does the smart thing.

Buenos Aires , Argentina

Thursday, 5 November 2009

We’re back in civilization. Not much time to write, but here’s a quick note...

Wait... you call this civilization? Looks more like Bubble Land again!

We just got off a plane from Salta, after spending a week trying to figure out how to run a wilderness ranch... and a few days with our old cowboy friends, Doug Casey, Rick Rule and Porter Stansberry. More on that as we sort out our thoughts...

Meanwhile, back in Bubble Land...

Gold is headed towards $1,100...

Bonds are soft... so is the dollar...

Speaking of old friends, Marc Faber says he’s long the dollar. Faber thinks the buck is over-sold. It could rise 10% in this last quarter.

But the Fed says it will keep interest rates low for an “extended period.” So there is still no sign of the kind of policy turnaround that might send the greenback back up.

Instead, we’ll have to wait until the bubble pops!

Oil is over $80...

Republicans are winning elections...

Hey, party like it was 2006...

The Dow is moving back up, too... and so are all the world’s markets... led by Asian stocks. China is booming... with its stocks up 4 days in a row...

The rise in gold comes as India’s central bank does the smart thing. Central banks need reserves. And historically, the only reserve a central bank can trust is gold. Putting US dollars in your vault – instead of gold – is a little like laying in a supply of lettuce to tide you over in a bad harvest year. Imagine what would have happened if pharaoh had stocked up on radicchio instead of grain? Those 7 lean years would have been a lot leaner than they were.

The Chinese have seen what happens when you rely on dollars for a reserve. You’re stuck. Because your reserves can wilt fast.

The Indians have a better idea – they’re buying gold.

The story, as told by Bloomberg:

(Bloomberg) -- Gold jumped to a record after India’s central bank bought 200 metric tons of the metal from the International Monetary Fund, heightening speculation that there may be more official purchases.

Gold futures for December delivery rose to a record $1,087 an ounce on the New York Mercantile Exchange’s Comex unit and traded at $1,084.20 at 1:28 p.m., up $30.20, or 2.9 percent. A close at that price would be the biggest gain for a most-active contract since March 19.

“This will encourage other countries and other investors, especially Indians, who are big buyers anyway, to jump into the market,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

The Reserve Bank of India paid $6.7 billion for the bullion, which it bought from Oct. 19 to Oct. 30. It was “the biggest single central-bank purchase that we know about for at least 30 years in such a short period,” said Timothy Green, the author of “The Ages of Gold.” “The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s.”

“This is safe-haven buying,” Frank McGhee said. “Gold is decoupling from the dollar, which can make it even more bullish.”

The metal has outperformed stocks and bonds this year as it heads for the ninth straight annual gain. The Standard & Poor’s 500 Index has risen 15 percent in 2009 through yesterday while returns on the benchmark 10-year U.S. Treasury note are down 5.7 percent.

Gold may average $1,125 in 2010, “with strong investment demand anchored by a negative real-interest-rate environment and probable central bank purchases,” analysts at Toronto-based Desjardins Securities Inc. said in a report.

*** This just in: A very important research offer you should look at

We have news from London headquarters that our editors have teamed up to provide a new offer. We like what they’re putting together…

“We’re ‘giving away our best research” Frank Hemsley, editor of our British team, tells us.

“It’s bigger than anything we’ve ever done before. We’re introducing an offer that could make – and save – readers of your Daily Reckoning thousands of pounds, forever.”

Out here in Buenos Aires, we’ve been watching the markets from a distance… not always able to comment… but always thinking. This venture the London team has been working on sounds interesting. A lot of research… a lot of thinking… a lot of bright ideas… …

You can see what you think for yourself, right here.

What our UK team has done is to open its ‘ Alliance’ club for the next couple of weeks. This’ll be good for those of you with some skin in the game whether you’re interested in small caps, blue chips, bonds, options, currency plays, emerging markets – you’ll see all of that in this report.

And more thoughts from Argentina…

*** Our friend Nassim Taleb took aim at the feds’ rescue efforts recently. Bloomberg reports:

Nov. 4 (Bloomberg) -- Companies that become too big, complicated and debt-ridden should be allowed to “creatively destruct,” said Nassim Nicholas Taleb, author of “The Black Swan.”

Taleb asks a good question. Why is it that there are no land animals bigger than an elephant? Because nature doesn’t permit it. Bigger animals die off.

Likewise, the market system disposes of companies that are “too big to fail.” It gets rid of them. The government on the other hand always tries to preserve and protect the biggest players – partly because they’re the most visible and partly because they have the most lobbyists.

“Companies, when they get too big, become fragile,” Taleb said. “You have rising complexity and rising fragility. At some point that’s going to blow.”

He said that if companies go bankrupt to get rid of debt instead of being bailed out, there will be less incentive for executives to take excessive risk.

“We’re not destroying debt,” Taleb said. “When you move it into the government, it stays in the government and that’s a problem.”

*** And here are a couple more interesting items we found when we got back to an internet connection. First, we discover that Congress is pushing more ‘stimulus’...

Senate May Pass Homebuyer Tax Credit Extension Today

Nov. 4 (Bloomberg) -- The U.S. Senate may approve as early as today a $45 billion plan to expand a tax credit for first- time homebuyers, extend jobless benefits and provide tax refunds to money-losing companies.

The plan would be the first major extension of provisions in February’s stimulus package. It would continue until April 30 the $8,000 homebuyers’ tax credit, slated to expire this month, which would be expanded to include people with higher incomes and some who already own homes. The credit would cost $10 billion, according to Congress’s Joint Committee on Taxation.

Obama has called for sending seniors $250 checks because they won’t get a cost-of-living increase next year in their Social Security checks.

The Treasury Department estimates that more than 1.4 million Americans have taken advantage of the homebuyer credit at a cost so far of about $10 billion.

Senator Christopher Bond, a Missouri Republican, had called the tax credit a waste of money, saying studies show that most of those claiming the break would have bought homes anyway.

“For the vast majority of cases, the homebuyer credit amounted to a free gift since it did not affect their decision to purchase,” he said on the floor this week. “The homebuyer tax credit is a terribly inefficient, irresponsible and poor use of scarce taxpayer resources.”

Extending the credit to people who own homes wouldn’t reduce the excess housing blamed for the slump because “every buyer taking advantage of the move-up credit would necessarily be a seller,” Goldman Sachs said. It said the plan may increase housing prices by 1 percent because “sellers are likely to incorporate a fraction of the credit amount in their sale prices.”

*** And here is an update from the Motor City:

Detroit house auction flops for urban wasteland

DETROIT (Reuters) - In a crowded ballroom next to a bankrupt casino, what remains of the Detroit property market was being picked over by speculators and mostly discarded.

After five hours of calling out a drumbeat of "no bid" for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to flag.

"OK," he said. "We only have 300 more pages to go.”

There was tired laughter from investors ready to roll the dice on a city that has become a symbol of the collapse of the U.S. auto industry, pressures on the indus trial middle-class and intractable problems for the urban poor.

On the auction block in Detroit: almost 9,000 homes and lots...