Chinese stocks plummet, worldly markets follow… what’s behind today’s sell-off… Dan Denning on taking profits in the twilight of the U.S. stock rebound… India reports better-than-expected GDP growth… why our Mumbai partners are still hesitant… Another compelling argument against U.S. banks… Dan Amoss serves the cold, hard data… Plus, signs of the times: American’s vote to throw the bums out while the free market backlash hits Hollywood…

China has once again set the tone for our Monday market forecast. Roll the videotape:

Chinese traders dumped shares early this morning after a popular magazine rumored that the booming Chinese loan market is cooling off. Caijing magazine guessed that the Chinese loaned about $29 billion in August, a 43% crash from July. While that number isn’t official, traders around the red nation raced for the exits. The Shanghai Composite closed down 6.7%, its worst day in

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So what has stocks soaring now, during this great deleveraging — this credit crunch — this historic pullback in household balance sheets?

Consumer confidence, of course.

We recently vowed to stop calling our national brethren “consumers” in favor of less degrading words — like Americans, citizens or just plain-old people. Thus, we report the Conference Board printed a surprisingly optimistic gauge of American consumption attitudes (doesn’t that sound better?) yesterday. After two months of decline, the index kicked back up to 54.1, just shy of a 2009 high.

Coupled with the latest printing of the home price index, that was enough to keep this mega-bounce alive and kicking. The news shot the S&P 500 to a 1% gain within moments of yesterday’s opening bell, which eventually faded into a 0.25% advance. The index is up almost 4% in the last five trading days. The Dow hasn’t fallen for six days in a row.

We

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Waterford, Ireland

Our faith is weakening. That is, our faith that the government will be able to cause inflation, sooner or later. Let’s review our own narrative: deflation now, inflation later.

It’s very simple. Maybe too simple. After a half a century of credit expansion, we now have a credit contraction. In this sense, everything is happening as it should.

There was a crash and credit crunch at the end of last year. Then, the feds panicked. They fought back with monetary and fiscal stimulus. Rates were cut to nearly zero. The Fed flooded the system with cash and easy credit – buying up Wall Street’s bad investments…propping up bad banks…and guaranteeing trillions worth of bad debt. And the federal government passed a stimulus program that authorized more than $700 billion in spending.

Beginning on March 9th, we also got a big bounce in the world’s stock markets – just as we

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By the time you read this column, Goldman Sachs will have probably reported a dazzling result for the second quarter. The rumors preceding this celebrated event sparked a stupendous 185-point rally on Wall Street yesterday.

But the trading day was not all about mere rumors. It was also about hearsay, hype and giddy optimism…

Meredith Whitney, “The Woman Who Called Wall Street’s Meltdown,” according to the Fortune Magazine cover of August 18, 2008, upgraded the shares of Goldman Sachs to a “Buy,” and predicted the stock would rise 30% from current levels. “Goldman has all the benefits of the capital markets in general,” said Whitney, “Without the ‘junk in the trunk’ as I like to call it.” Goldman shares jumped 5.3%.

Based on Whitney’s upgrade, and the subsequent market action, gullible investors could have deduced that the credit crisis has ended. The rest of us could have deduced that the

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Idiocracy in action: Congress blocks bill to audit the Fed… No surprise: American loan defaults hit record… Surprise: Could Canadians be next? China takes another “World’s No. 1” from U.S. … Dan Denning, Byron King on recent triumph and tragedy in the oil patch…

Great news: The Federal Reserve will retain its right to operate in secrecy.

“Thank God for Rule 16!”

Late yesterday, the Senate majority put the kibosh on a last-hour provision in the 2010 spending bill that would audit the Fed. Not because it’s a bad idea… but because of the arcane Rule 16, which prohibits policy legislation from being added to spending bills. (The kind of “rule” that’s only evoked when the majority gets uncomfortable.)

“The Federal Reserve will create and disburse trillions of dollars in response to our current financial crisis,” said Sen. Jim DeMint, who spearheaded

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“It’s not technically a new decade yet,” writes small-cap expert Dan Denning at WhiskeyandGunpowder.com. “But if the trade of the last decade was to sell stocks and buy gold, then maybe the best trade for the next ten years is to sell bonds and buy energy. Gas, coal, oil, conventional, unconventional, renewable, alternative. You have a whole portfolio of choices.”

This from Dan:

It seems pretty obvious, that for the last ten years anyway, selling stocks and buying gold would have been a good trade/strategy. Stocks ended an 18-year bull market in 2000 and gold ended a 20-year bear market. One asset class was at a cyclical low. The other was at a cyclical high. In fact, you might even say that one was at a generational low and the other was at a generational high.

Gold is no longer as low as it once was. But it’s still

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It’s not technically a new decade yet. But if the trade of the last decade was to sell stocks and buy gold, then maybe the best trade for the next ten years is to sell bonds and buy energy. Gas, coal, oil, conventional, unconventional, renewable, alternative. You have a whole portfolio of choices.

By the way, last year at the Agora Wealth Symposium in Vancouver, one of our colleagues took the stage to point out that your editor was complete moron. In this particular case, it was for being bullish on gold.

He said that gold hadn’t done much adjusted for inflation since 1980. What’s more, he said, its worth less, adjusted for inflation that it was twenty years ago. How, he speculated, could anyone take the advice to buy gold seriously when it had performed so abysmally?

Well here are the facts. The gold price bottomed in October of 2000 at $263.80.

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American markets at a standstill… can the Far East drive stocks forward? … Chris Mayer on buying “what China needs, but can’t make for itself” … Dan Denning’s pair trade for the next decade … Bill Bonner and Goldman Sach’s CEO on the current “bull market” … Plus, a CEO pay debate fills our inbox… your letters and our response, below…

The Dow crashed 1.4 points yesterday, wiping out Monday’s 1.3 point moonshot. Desperate for something beyond these 0.014% “swings,” the market’s putting China in the driver’s seat today… and these guys still have quite a lead foot:

Chinese auto sales soared 34% in May, year over year. According to the China Association of Automobile Manufacturers, the Red Nation scooped up 1.12 million vehicles last month, outpacing any nation in the world. Consider the course of the last 12 months,

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The Federal Reserve is puzzled. So are we. The Fed is puzzled that Treasury bond yields are soaring. We are puzzled that the Fed is puzzled. Of course bond yields are soaring! Why wouldn’t they be?

If you happen to be the world’s largest debtor, and you happen to need another $2 trillion of credit from the rest of the world, you should not be surprised that your creditors demand a higher interest rate on the funds they provide. And yet, some members of the Federal Reserve are perplexed by this result.

“The Federal Reserve is not really sure what is driving the sharp rise in long-dated bond yields,” Reuters News reports. “Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit?…Or does the steepening yield curve mean investors are worried

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Can you believe it’s already June? What a month May was for commodities. They are Lazarus, come from the dead to tell us all that the world will not stop turning if there is a financial crisis in the West. Or something like that.

If we’re using numbers instead of metaphors, we’d say the CRB Reuters/Jeffries Index had its biggest monthly rally in 34 years. It was up 14% on the month. That was the best performance since July of 1974.

A monthly performance like that can only mean one thing. We’re just not sure what one thing it is. It could mean commodities have rebounded from being oversold, as they were in late 2008. It could mean that markets are less pessimistic about the global economy than your editor at the Old Hat Factory (though we doubt that).

It could also mean that investors increasingly prefer tangible assets as a long-term growth

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