Forget About Inflation, What About Deflation? Auto Sales As A Leading Indicator

You are receiving this e-mail as a part of your subscription to Investor's Daily Edge. Your subscription began on Tuesday, March 18, 2008. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Investor's Daily Edge issue without interruption.

	Tuesday, September 9, 2008 Whitelist Us         Will the Government Allow Asset Deflation? By Andrew Gordon I’ve always liked this quote: “Life is what happens to you when you are making other plans.” I’ve certainly seen this in my life. But we keep making plans, don’t we? We can say the same of the governments. They keep making plans, rules, laws and policy. Then the economy happens... While the government talks about releasing the Strategic Oil Reserves, the price of crude goes down on its own. While it lowers the benchmark rate, interest rates keep going up. While it talks about energy independence, our dependence on foreign oil grows. Our oil bill last month was the highest ever. Does it make any difference what the government says ... the plans it makes ... or the policies it implements? I’m not just talking about the U.S., I’m talking about most governments. They’re usually operating under huge constraints which make real change almost impossible. Energy independence, for example, is so far off it’s just a speck on the horizon. If the U.S. government was really serious about it, they’d create an “expedited” approval process for new nuclear energy plants. Even then, at best, real energy independence is decades away. Politicians and government officials don’t even talk about economic independence. That’s a can of worms they’d rather not open. But why talk about energy independence when we have both our hands and feet tightly bound? The U.S. economy is in a heap of trouble. Europe is taking the same dismal path. And governments from both sides of the pond talk about raising (the U.S.) or lowering (Europe) rates, stimulus packages, changes in the tax regime – as if it really matters. It only matters if you’re satisfied with changes that nibble on the outer-crust of how the world economy operates. Until recently this self-perpetuating machine called the world economy has been the model of simplicity. Asia sells to the West. Asia rakes in the hard cash. Asia is happy. The West consumes more and more. It’s happy. Asia lends the West more money. Asia can afford to. The West increases its consumption. It can’t afford to. But it’s happy anyway. The West no longer makes things. It consumes things. Manufacturing has moved to the south and east. That’s okay with the West. The father of free-market economics, Adam Smith, calls such “division of labor” the main cause of prosperity. Labor does and should move to where it’s most efficient (read: “cheap”). INTERNAL ENDORSEMENT Stock Market Shocker: How a Bunch of 5th Graders Made Fools of the Trading Elite…! Wall Street wants you to believe that you have to entrust your money with the professionals and all their skills, resources and systems, if you want to make money in the markets. It’s what these guys do for a living! How could you possibly beat them?!Nothing could be further from the truth. In fact, I have used an embarrassingly simple secret to make $15,048 in just 30 days... and boost my overall account balance 152% in less than a year. Keep reading to learn how you could join me each month... So how does the West pay for those things it imports? First the good news. The West provides technology and services and products at the top of the food chain. That’s where you want to be. Now the bad news.  It doesn’t produce enough. The downward spiral begins... The West goes more into debt. And it gets paid with its own weak dollars which are worth less and less (if you like, please see one of a dozen charts on the dollar which Rusty has shown over the past few months). It should be clear to you by now that the only thing keeping Western economies afloat has been loose credit. The combination of low interest rates, the printing of money, and then giving this cheap money to anybody who asks for it (creditworthiness be damned) was bound to lead to several “hot” markets. Indeed it did. Housing got hot and stayed hot. Commodities got hot and stayed hot. Energy got hot and stayed hot. There were other overpriced assets that reaped the profusion of money into the real and fake (surely we know that is exactly what mortgage derivatives were) markets like... CEO’s ballooning salaries ... real estate in formerly cheap places like Moscow and Calgary ... works of art (yes, some managed funds have entered into the art world). Asset inflation has seeped into some unexpected nooks and crannies of our lives. Take baseball and homeruns. Everyone knows by now that the homerun stats from the ‘roid 90’s and early 2000’s are inflated. But for the incredibly inflated salaries offered, maybe you’d go looking for a little artificial help too. Inflated salaries are also behind the greed which led the highly paid management of the two flim-flam twins – Freddie and Fannie – to accept Alt-A “liar-loan” mortgages made primarily to speculators – not the near-poor who really needed them. And, unlike what you’ve heard, inflation has not led to a better standard of living. On the contrary, it has led to the beginning of the end of the middle class. Average household income has gone down during the Bush years. In order to enjoy the trappings of a middle-class lifestyle, these people had to go deeper and deeper into debt.   In the meantime, the CEOs and their pals got their inflated salaries which bought inflated assets which helped increase the price of assets even more. It’s been a vicious circle that the rich could afford but the middle class could not. This is what has driven economic growth. It’s all been about inflated assets. China will not protest this world economic order. Nor will Russia. Or Venezuela. Or Iran. These countries have grown strong on the back of commodity and petro- inflation. To kill this insidious asset inflation, global growth will have to take a much longer break – I believe beyond the end of the year. In the meantime, we will feel much poorer. That includes the financial community. We could try to put off this painful day of reckoning. Many from Wall Street are suggesting that’s exactly what we should do. (For a more conventional view of the asset crisis and what the government should do about it, read today’s “Newsworthy”.) It’s a long road. And it’s just begun. Chances are, the government will do everything in its power to short-circuit it. As an investor, your best insurance in case it doesn’t succeed is gold and silver. Invest well, Andrew Gordon P.S.  To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. Market Watch Auto Sales Still Falling By Andrew Gordon I’ve heard it a dozen times. The economic slowdown will end when the housing sector recovers. The idea is that it was the housing crisis which kick-started the economy’s decline, and it’ll be housing which brings it back to life. A recovery in housing will give people confidence in the economy. And, just as importantly, it’ll enable people to take out equity loans again. That will give a big boost to spending. But I see it the other way around. I believe that the housing sector crisis will end when the economy recovers. In other words, I see the revival of housing as a lagging indicator. Before people start buying houses in increasing numbers, the job and household income numbers need to improve. The retail numbers will also have to pick up. People who are reluctant to buy new clothes will also be reluctant to buy new houses. People who can’t afford new cars won’t be buying houses. That’s why I’m keeping a close eye on auto sales. When auto sales pick up, it’ll be a bullish sign for the housing sector and the economy as a whole. The auto sales numbers for August are in. And they’re not pretty. They’re down for the tenth straight month – dropping 15 percent. Truck sales (this is no surprise) fell 22 percent. Among the six biggest automakers, only Nissan increased sales – by an impressive 14 percent. But that was more than offset by Volvo’s downshifting sales (49 percent drop), Chrysler (34 percent), Ford (26 percent), GM (20 percent), Toyota (nine percent), and Honda (seven percent). Daimler came closest to Nissan’s sales performance and it was still in negative territory, but by less than one percent. Auto sales are headed for their worst year since the early 1990’s. And as long as they continue to head down, so will the economy. INTERNAL ENDORSEMENT Wall Street Lies EXPOSED! They've led you to believe that investors who want outsized gains must take on ridiculous risks. Click here to learn how a Small One-Time Investment Could Grow Until It's Larger Than All of Your Other Investments Combined. If you enjoy IDE's daily investing advice, you'll definitely be interested in checking out our sister publication, Early to Rise. Each morning, you'll get powerful wealth-building advice covering real estate, entrepreneurship, personal finance, marketing, and much more. Sign-Up for Early To Rise today! To unsubscribe from and Investor's Daily Edge and any associated external offers, Click here To change your email address, Click here To cancel or for any other subscription issues, write us at: Investor's Daily Edge 245 NE 4th Ave, Suite 201 Delray Beach, Fl 33483 Phone: (800) 681-4759	The Market Minute The Dollar Awakens ... A strengthening dollar and falling oil prices should help cut imports more than the weak dollar has hiked exports. Not only do the changing fortunes in the dollar and oil help our trade balance, they allow the Fed to once again seriously consider hiking interest rates. All this bodes well for the dollar, especially at a time when the ECB is more likely to lower than raise its key interest rate.     In The Markets   Last Change YTD Dow 11,510.74 289.78 -13.22% Nasdaq 2,269.76 13.88 -14.42% S&P 500 1,267.79 25.48 -13.66% Gold 802.40 0.50 -3.71% Silver 12.09 0.13 -18.14% Oil 106.44 0.21 10.90% Nat Gas 7.54 -0.06 0.80%   Newsworthy The U.S. government needs to start buying assets to stem a bourgeoning “financial tsunami,” according to Bill Gross, manager of the world's biggest bond fund. A process of “delevering,” where banks are shrinking and cutting off lending, is sapping demand for loans, bonds, stocks and commodities, driving down prices of assets of even  “impeccable quality,” Gross said. The decline may continue until the government steps in as a buyer, he said. “Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,” Gross of Newport Beach, California-based Pacific Investment Management Co. said in commentary posted on the firm's Web site today. “If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.” -- Bloomberg     Meet the Team MaryEllen Tribby - Publisher Jedd Canty - Business Director Rick Pendergraft - Managing Editor Jon Herring - Editor Nicole Reynolds - Marketing Analysts / Editorial Contributors Michael Masterson Charles Delvalle Andy Carpenter Christian Hill Lynn Carpenter Andrew M. Gordon Dr. Russell Mcdougal D.D.S.

Copyright © 2008 by Fourth Avenue Financial. All rights reserved. The Fourth Avenue Financial unites the stock-picking talents of several analysts and editors. Each of the services is based on individual trading/investment philosophies or vehicles and specific investment approaches. Fourth Avenue Financials' Investor’s Daily Edge is intended specifically for mature investors with a strong sense of individual responsibility who want to arbitrage different viewpoints to optimize their personal investment strategy. We reserve the right to remove readers we believe do not meet these criteria from our distribution list without prior notice. You are welcome to distribute this message, at your discretion, to others who you believe share the values of the Fourth Avenue Financial. NOTE TO OUR READERS: Fourth Avenue Financial or Early To Rise does not act as an investment advisor or advocate the purchase or sale of any security or investment. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Fourth Avenue Financial expressly forbids its writers from having a financial interest in any security that they recommend to their readers. Furthermore, all other employees and agents of Fourth Avenue Financial and its affiliate companies must wait 24 hours before following an initial recommendation published on the Internet, or 72 hours after a printed publication is mailed. To contact us via the web, Click Here | phone 800-681-4759 We respect your privacy. You can view our privacy policy here. © Copyright Early to Rise, LLC., 2008