The Fed’s FOMC announcement came out…

We got exactly what I expected, a kind of wishy-washy, “hedging our bets” statement from the Fed. You have to remember that Bernanke was Greenspan’s right hand man for much of the bubble days of the ‘90s and early ‘00s, so the guy is an expert at walking both sides of the line when it comes to policy and public statements.

For instance, the Fed announced it would keep interest rates between 0% and 0.25% for an “extended period.” No surprise there. As I’ve noted previously, 80%+ of the $200+ trillion in derivatives sitting on US commercial banks’ balance sheets are related to interest rates.

For the Fed to hint at raising rates (let alone raise them) would kick off a systemic implosion that would wipe out the very guys the Fed has been bailing out. Suffice to say the Fed won’t be raising interest rates …

This week, the big story was once again coming from the gold market. Mid-week, the yellow metal hit $1020 – but the rally was not of the usual variety. Generally, investors flock to gold when the dollar is weak and inflationary fears run high. But as we all know, inflation is not a problem right now – despite the Fed’s best efforts. No, this rally had another factor pushing it: our friends in the Far East. The Chinese have been quite vocal with their concern over the US dollar and have increased their official gold reserve holdings by 75% in the spring. Smart move. In the Weekend Edition’s Highlight of the Week, Bill Bonner looks closely at where the recent rise in gold prices puts our “Trade of the Decade.” Read on… Gold took off [Wednesday]…closing at $1020. Here at The Daily Reckoning, we’re impressed. But we’re not that impressed. Gold, of course, ...

That the president of the United States of America is now creating the business plan for an automobile company is surely a sign of something big.

Yesterday was a holiday in the US. Little news from that quarter.

But while Americans were enjoying their backyard barbecues, the rest of the world turned.

“Obama plans ‘leaner’ car industry,” says the BBC.

While most readers will focus on the last three words of that sentence, we direct your attention to the first two. The subject is the important part… not the predicate.

That the car industry may or may not get ‘leaner’ is of little interest to us. It will do what it needs to do. But that the president of the United States of America is now creating the business plan for an automobile company is surely a sign of something big. The world has already turned… perhaps more than we realize.

It was only a few

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Simple question: how do you invest during an inflationary boom? Today, some concrete ideas. And the simplest idea of them all-when you consider soaring government deficits-is to sell government bonds and buy beaten down, world-class equity.

Mind you, this is if you want to be in the equity market at all. There is a very good case to be made for NOT being in the equity market this year, or only being in those asset classes and single stocks you think will appreciate (or grow earnings) faster than the rate of inflation.

But let’s be more direct and say that this is still a bear market. The bear market began in 2000 with the popping of the tech bubble. The Fed fought back in 2003, setting a low-interest rate policy the rest of the dollar-pegged world followed. This kicked of leveraged booms in residential housing, credit derivatives, and stocks, bonds and commodities.

All

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Get up, stand up… stand up for your rights…Get up, stand up… don’t give up the fight…– Bob Marley & The Wailers. Thanks to you, dearly beloved reader, Jim Amrhein and I have a friendly Taipan Daily rivalry going. It seems Jim’s time spent basking in the glory of an all-time reader response record (for “A Kind Word and a Gun“) was all too short.

As quickly as you, the readership, set a new feedback milestone with your outpouring of thoughtful replies on guns and Second Amendment issues, you then outdid yourselves with an even bigger response to Friday’s missive, “Will California Go to Pot?”

So now ol’ Jimbo and I have an excuse to rib each other in the one-upmanship

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Finally…we’re back in London. We left at the beginning of April…went to San Diego and Los Angeles…then to Buenos Aires and Salta…then to Paris for a few days.. and now we’re back. London is cold and rainy…just like we left it. Not exactly home…but it will do. But what’s this? The City seems to be winding down. All those hot shots in the financial sector aren’t so hot any more.

In the space of just ten years, the percentage of GDP generated by the financial sector almost doubled – from 5.5% in 1996 to 10.8% a decade later. But now the whole sector is shrinking…along with bonuses…payrolls…and expense accounts.

And since Britain counted so heavily on the financial high fliers and their money…the whole country seems to have gone into a funk.

Tax revenues are collapsing. Deficits are soaring. The U.K.’s national budget deficit is already at 12%…about even with the United

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If the pattern of the ’30s holds, we won’t see the stock market bottom until 2011.

When we left three weeks ago, it was cold and rainy in Europe…and the world was in the midst of a terrible financial crisis.

But now we’re back…and everything has changed. The trees along the Boulevard de la Villette have leafed out. Flowers are in bloom. People are sitting at sidewalk cafes. Life seems to be returning to normal. As expected, the financial world seems to be walking with a lighter step. It feels the sun on its face…and guesses that the long winter is behind it.

“Encouraging signs” are everywhere, says Le Monde. In fact, all the news reports say they see them. Consumer sentiment isn’t as bad as it used to be. Stocks are rising. The banks are back in business.

“How to profit from the recovery,” says one headline.

“Stocks point to end of downturn,”

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“How do you feel now?” asked a reporter for a local investment magazine. “I mean, you’re a contrarian…and you were right about so much?”

“Not exactly,” we explained. “Yes, we saw the problem coming. And we expected the government would do all the wrong things – which it has. But we never imagined that they’d do so many stupid things all at once.”

There are only two examples from modern history of depressions such as this – the ’30s in America and the ’90s in Japan. Both times, the governments did stupid things. But this time, the U.S. government has outdone them all. They’ve committed $13 trillion to programs that make no sense theoretically…and have never worked when they’ve been tried.

If you’ll recall, the dog that bit the world economy was rabid with debt. The feds are trying the old ‘hair of the dog’ technique. But they’ve rounded up every mangy

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Buenos Aires, Argentina Is the rally still on? We’re not sure. Wednesday, the Dow fell 83 points…after a weak bounce on Tuesday. We expected the rally to last until June and to take the Dow back to the 10,000 range. But anything could happen. And if you depend on 91-day T-bills for your spending money, you’re in a world of hurt. The yield is only 0.13%.

But maybe things are better on the other side of the planet. How’s China doing? Analysts are “cautiously optimistic,” says a New York Times report.

Retail spending in China is said to be up 15%.

Meanwhile, a report tells us that China is stepping up its purchases of U.S. Treasury debt.

Hmmm… Why would China be doing that? The official response to that question is that U.S. Treasury debt is not only the most abundant credit in the world; it is also the most reliable.

As to the first

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Buenos Aires, Argentina “What’s that smell?”  We were on an airplane when Edward, 15, noticed an odor that seemed out of place. “Dad…you should have at least cleaned your boots!”

The manure began accumulating when we rode up to the high pasture on Tuesday. More about that below…

In the meantime, the Dow rallied a bit yesterday – up 127 points…barely half of what it lost on Monday. Is the bounce still bouncing? We don’t know. But we don’t trust it. They say the stock market ‘looks ahead.’ So, it is possible for it to see things we can’t see. On the other hand, what was it looking at two years ago? Didn’t it see the economy going over a cliff? Apparently not.

But investors tend to believe what they want to believe. And what they want to believe is that the stock market has had its vision corrected and now sees a

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