When most people are sued by the SEC, they do their best to put the matter behind them - as quickly and quietly as possible.

This normally involves paying a large fine and essentially promising "not to do it again." If you pay the fine, the chances are good most people will ignore the matter. You're not required to admit any guilt. Thus, the damage to your reputation is largely mitigated and you can go on with your life. That's why most people settle with the SEC when it comes to civil (noncriminal) lawsuits.

But I didn't settle when they sued me.

Even when a settlement was offered to me for as little as $1 million, I refused it. Instead, I've faced a lengthy court battle that's brought with it tremendous risks to my reputation and legal bills amounting to almost $3 million.

Why on Earth would I try to fight the "city hall" of the securities industry?

Because I'm eager for the facts of my case to come to the public's attention. I know when the facts of my case are accurately known by the public, my subscribers will support my decision to fight the SEC. That's why I've never tried to hide this matter from anyone.

Unfortunately, so far, almost none of the critical issues at stake in my fight have been accurately reported. Worse, people who have no idea what they're talking about continue to assume my case is another example of a financial publisher acting scurrilously - front-running his subscribers or ripping people off by promoting penny stocks that he's been paid to endorse.

And so... at the risk of upsetting the judges who have to date refused to believe a word I've said about the matter... I would like the opportunity to tell you, my subscribers, exactly why I've refused to settle my case. And why the matter is now pending before the U.S. Supreme Court.

I'd also like the opportunity to direct you to several reliable sources of information about the matter, such as The New York Times and The Wall Street Journal. Most of the things written about the case elsewhere are patently false and misleading.

For example, most people don't know my battle with the SEC actually has nothing to do with stock trading or actual securities fraud.

The truth is, there isn't any allegation that I ever owned the stock in question - and there never has been.

Nor is there any allegation I've done anything at all that's directly related to the purchase or the sale of any security. I didn't "front run" my recommendation. I wasn't being paid by promoters to recommend a stock. These things have all been said about the case - even by a few fellow journalists. But in fact, I wasn't even accused of doing them by the SEC.

So what is this case about, if it's not about trading in securities?

My lawsuit with the SEC started as a fight over the First Amendment rights of a publisher - me. It has continued because I refused to settle or buckle under to the government. I maintain my writing was honest, materially correct, and is certainly protected by the First Amendment of the U.S. Constitution.

I claim a former unit of the Department of Energy - a unit that was sold to investors in 1996 and is now known as USEC - was withholding material information from the public. I believe it did so in order to reward certain investors, including its bankers, its corporate insiders, and members of the Department of Energy.

By revealing information about a major and long-pending agreement with USEC's Russian supplier of uranium, I disrupted the opportunity insiders had to accumulate shares at lower prices. In short, I ruined the party by telling investors the agreement had been reached and would be announced in a few days.

Because USEC was trading at a very distressed price (half of book value) and was paying such a high dividend (yielding more than 8%), I believed the stock would soar once this long-pending agreement was made public. In my report, I explained why the agreement would turn USEC into a profitable company by lowering the company's raw material costs dramatically. I predicted the stock would double on the news.

And that's almost exactly what happened.

Based on what I'd learned from a company insider (the director of investor relations), I wrote the agreement would be announced at a major nuclear summit featuring presidents Bush and Putin on May 22, 2002. The insider explained the details of the summit to me in advance, long before they appeared in the newspaper and told me to "watch the stock on May 22." And in fact, the long-awaited announcement came about a month later, on June 19, 2002. Keep in mind, this agreement had been pending for more than two years. And yet, somehow, I was able to pinpoint almost to the day when it would be announced to the public.

Did the stock soar? No, not exactly. It moved from around $8 to around $11. That's roughly a 40% move in a few days. That's not bad. More importantly though, following the new agreement with the Russian uranium supplier, the stock traded all the way up to nearly $20 over the following three years. In fact, by the time my case reached its first federal judge, investors who followed my advice would have made more than 150% on the investment, thanks to capital gains and big dividends. (The stock eventually went to $25 during the uranium bubble of 2007.)

Yes... that's right. The SEC is suing me for a matter that involves a stock that went from under $8 to nearly $25. That's more than a 200% gain. You've got to be kidding, right? Nope.

But why?

Here's the heart of the matter.

I believe the company knew for certain its deal for cheap Russian uranium would receive the required final approval of both the U.S. and Russian governments at the summit. This approval was the only thing holding up the deal. With this knowledge in hand, it would have been easy for the company's insiders and other senior officials in the Department of Energy to load up on the stock and profit once the news was announced to the public.

And I wasn't the only analyst who was told when to expect the deal.

In the discovery process of our lawsuit, we found a notebook from USEC's investment bank - Bank of America - where its analysts clearly indicated May 22 was the expected announcement date.

But instead of pursuing the possibility USEC's managers and bankers were withholding this material information, the SEC decided to attack me. Keep this in mind: I didn't use this information for my own personal gain. I didn't buy the stock. Or even just tell my friends to buy the stock. No, instead I did my job. I published a report about what I'd learned and offered to sell my report to any (and all) interested investors.

I also sent a copy of my report (and the accompanying sales letter) to my source at USEC. He never asked me to change a single word of my report. He had my cell phone number. He had my office number. He had my e-mail address. If there was any legitimate problem with my report, all he had to do was ask for a correction. He never did. Not even to this day.

I did all of the things any reputable journalist would do. I checked my source's facts. Sure enough, a presidential summit was approaching. Sure enough, there was a large pending contract. Sure enough, the new deal would change the economics of the company in a dramatically positive way. I sent a copy of my report to my source. And I offered it for sale to the public. If anyone wasn't satisfied with the report, for any reason, I gave him his money back.

Even today, looking back at the matter through the lens of time and experience, I still think my USEC report was one of the great stories of my career and I'm proud of the report I wrote. Are there things I would have done differently? Yes. I would have made sure to have a recording of my interview.

You see, even though I never owned a share of the company, even though I had no incentive whatsoever to lie about the company, and even though third parties who have looked at the facts of the case (like The New York Times) agree my report on the matter was overwhelmingly correct... the SEC decided to come after me and not the people who were really defrauding the public.

Incredibly, the SEC sued me for securities fraud, saying I had lied about what my source told me and that selling my report about USEC was tantamount to brokering the stock. Specifically, the SEC claimed my source didn't tell me to "watch the stock on May 22," which was the only part of our conversation that I quoted.

Since I can't prove what my source said, you might assume I must be lying. But if he didn't explain the timing of the deal to me, how could I have known - within a month - exactly when the deal would close? The fact is, until our discussion, I didn't know anything about the upcoming presidential summit. It wasn't reported in The Wall Street Journal until about a week after our discussion.

But... just for the sake of the argument... what if you assume I knew about the summit from another source and I merely attributed it to the company in order to claim I really had "inside" information? Why then, even after I wrote the report and sent my source a copy, did he not demand a retraction?

And if the company knew my report was false, why didn't it put out a press release denying it? The NYSE rules require companies to put out press releases anytime there's a material misstatement in the press.

The fact of the matter is, my report was overwhelmingly correct. And my source couldn't deny my report because he didn't know whether or not I had a recording of our conversation (which took place over the phone).

When the SEC came calling later in 2002, I expected it would be going after the company for selective disclosure - a violation of SEC regulation FD. And sure enough, it wanted all of my personal records to make sure I wasn't front-running the stock, etc. But then, instead of shifting its investigation to the company, it demanded to have the entire subscription list of not just my publishing company, but also of our parent company, Agora Inc.

It wasn't going after USEC for withholding material information; it was going after us by intimidating our clients. And it didn't ask for just the USEC report subscribers - it demanded every single name and address on our entire database, including my parent company's database.

Rather than give in to this subpoena, we sued the SEC in federal court to protect our subscribers' privacy. A well-established legal precedent protects a publisher's subscriber lists. (What you decide to read is none of the government's business.)

That's part of the story I'm sure you've never heard before: We sued the SEC first. And we did so to protect our subscribers, the overwhelming majority of whom never bought the USEC report in the first place.

I understand that you might reasonably wonder... How could any of this be true? I mean, wouldn't you expect that as soon as the SEC knew I'd sent my source a copy of the report, the matter would be closed? Or don't you think as soon as it knew I wasn't trading the stock or front- running it, the SEC would have simply left me alone?

Even after reading all of this, undoubtedly, a lot of people must think I'm merely trying to muddy the waters because I'm guilty of front-running the stock... or lying to investors. Why else would the government waste its time on a newsletter writer?

I understand my story might be hard to believe - at first. The public generally has confidence in our government. It will be hard for some people to imagine the SEC would actually go after a journalist with the intent of putting him out of business simply because it didn't like what he was writing about.

But my story isn't unique.

At the same time the SEC was abusing its power by subjecting me to interrogations, subpoenas, and crushing legal bills - all in violation of the First Amendment - it was also going after many other legitimate market participants - including David Einhorn, the well-regarded hedge- fund manager (Greenlight Capital) for merely speaking about securities.

As with my case, the SEC came after Einhorn for speaking openly about abuses taking place at a Washington-based business (Allied Capital), a company that - like USEC - was heavily staffed with former government officials, including Joan Sweeney, the company's chief operating officer, who was a former senior member of the SEC's Division of Enforcement. Our stories are eerily similar...

THIS IS WHAT EINHORN WAS WARNING INVESTORS ABOUT, AS EARLY AS 2002. THE SEC RESPONDED BY INVESTINGATING EINHORN.

Rather than investigating Einhorn's claim that Allied Capital was cooking its books by using fraudulent accounting, the SEC instead began investigating him, alleging securities fraud because of what he'd said about Allied Capital during a presentation at an investment conference that's held to benefit charities.

After several years of threats and abuses (like having his phone records stolen), Einhorn was vindicated. The shares of Allied Capital collapsed as the company was revealed as fraudulent. But even today, Joan Sweeney is still with Allied Capital. The SEC has never been forced to fire any of the agents who abused their power during the investigation of David Einhorn.

To draw attention to the abuse he'd suffered, Einhorn decided to donate all of the money he made from shorting Allied Capital to charity, and he wrote an entire book about the situation called, Fooling Some of the People All of the Time.

Says Einhorm about his experience:

Allied isn't the biggest, most egregious, or most audacious fraud I have seen. In a sense it is a garden-variety fraud - dishonest business dealings by dishonest management. So why all the fuss? The story I am telling is one that has been surprising and unexpected - even to me. I think it is important and needs to be told. This book reveals some serious problems in the regulatory landscape that I am in a unique place to discuss.

If we are going to permit the retribution against the whistleblowers shown in this story - defamation, investigation, invasion of privacy and so forth - then we surrender public free speech. If we allow the people in this story to operate outside the law, then we nourish a corrupt business culture. Rather than turn a blind eye to the fraud I witnessed, I made a decision to stand up and speak out despite the consequences. I hope my story inspires regulators and government agencies to do the right thing.

I hope you'll remember most people don't do what I've done and what Einhorn did.

Most people don't fight the SEC because they don't want their names in the paper, they don't want the stigma of being investigated by the government, etc.

Believe me, I can understand why. When the news of the SEC's investigation of me leaked out, publishers around the world refused to do business with me. Potential employees refused to come to work with me. Companies refused to be interviewed by me. The lawsuit has made it vastly more difficult for me to simply stay in business. Even today, every time a potential subscriber stumbles across information about the lawsuit on the Internet (and much of it is completely untrue) he's likely to cancel his subscription or simply decide not to renew.

And think about this... the more people who simply refuse to write about securities because of the threat of an SEC action or because they fear retaliation from the businesses they write about, the less high- quality information will be available to investors. The less information is available, the more bad actors will take advantage of investors.

Whether you realize it or not, the SEC isn't trying to protect investors. If it were, Bernie Madoff would have never happened. The SEC knew all about Bernie Madoff - the SEC audited him regularly. Many people - including Barron's - pointed their finger right at Madoff and revealed his fraud. Still, the SEC did nothing.

The SEC knew all about Enron and WorldCom and the conflicts at the investment banks during the Internet boom. The SEC knew all about GM's debt load. It knew all about the problems with Fannie and Freddie. In fact, it was the SEC that approved the huge increase to investment banks' leverage in 2004 - a move that directly led to the financial crisis of 2008.

But... maybe you still trust the SEC. And if you do and you want to believe Porter Stansberry is out to harm investors by publishing independent reports on public companies - that come with a money-back guarantee - there's probably very little I can do to change your mind.

On the other hand, if you ask any securities industry professional who reads our newsletters, I have no doubt he will tell you our work is among the best you can buy anywhere and is far superior to nearly all of the research put out by the brokerage firms. I know this is true because thousands of professionals are our clients and I have hundreds, if not thousands, of testimonials from these readers.

The truth of this case is so simple to see. Just ask yourself two questions:

1. How can the SEC accuse Porter of intentionally lying when Porter sent his source his full report and the source never requested a retraction or a correction to any of Porter's reporting?

2. Why would the SEC risk a constitutional battle with a bona fide journalist over a report even The New York Times says was basically correct? Why would the SEC want to shut down a business like Stansberry & Associates Investment Research - which offers refunds to any unsatisfied customers and whose analysts never trade in the securities they recommend?

Don't you wonder why the SEC would target my business - which doesn't manage money or broker stocks - while ignoring enormous ponzi schemes going on in the businesses it supposedly regulates?

I can't prove it... but I don't think the government likes it very much when I tell investors the truth about things like Fannie, Freddie, and General Motors. I don't think the SEC wants the American people to know the truth about our financial markets - or the state of our government's finances. And I think the government is afraid of what will happen when you find out the truth.

Whatever happens with my court case, I hope you'll know I did, and have always done, my best to tell you the truth.

After all, unlike the government, the truth is my only weapon.

Regards,

Porter Stansberry
for The Daily Reckoning Australia

• Who Was the SEC Harassing Instead of Madoff?
• You Can Never Be Sure How Fabricated Income and Earnings Are These Days
• Rising in Defense of Goldman Sachs
• General Electric & Lift Capital Usher in Rough Start for ASX
• How the U.S. Dollar Came to be the World’s Reserve Currency

..and everywhere people went home - or went out to buy food, movies...the essentials...

"How much wine do we have stocked up," we asked Elizabeth.

"Not enough..." More below...

There was a storm raging on Wall Street too. And by the end of the day, traders, investors and speculators probably wished they had stocked more alcohol for the weekend.

The Dow was up 10 points. After being down 100 points. Gold fell $10.

"Clearly we have entered the worry, fear camp," said one pro.

Unfortunately, today's action was not as clear-cut as we would like. There was no bounce back. And no further decline. Our guess is that stocks will probably trend downward for a long time. Most likely, the long-awaited - at least by us! - resumption of the bear market has begun. We've had our crash. We've had our bounce. Now, we'll take the long slide down to the ultimate, final, this-is-where-it-stops end.

Listening to the radio this morning, the announcer told us that only "essential" government employees had to report for duty this morning. We wondered if any of them really were essential. Surely, not the fellows who are watching after the African horned beetle. Surely, not the ones who are designing a new health care overhaul for the nation. Surely, not the ones who are coming up with a revision to subsection 4.503.02 of the Internal Revenue Code dealing with unlicensed backdated further codicils of provisions dealing with gifts to one-armed wonton turners who are beneficiaries of insurance policy proceeds upon which sufficient basis has been revoked because they failed to read the fine print. Or something like that.

Take out all the non-essential federal employees? Who's left?

Anyone? Probably a couple guys in the Pentagon who make sure the Canadians are not amassing troops on the border.

But that is another subject, isn't it? Not exactly. The federal payroll is the only payroll in the nation that is expanding. Government is a growth industry. Just about everything else is in decline.

Wait. The latest number from the feds tells us that joblessness declined by 0.3% last month. Do you believe that, dear reader? Where's the SEC when you need it? Aren't the feds misleading investors - intentionally?

There was another ad on the radio this morning asking for census takers. More federal employees! Why not get the non-essential employees to count people?

We don't have a separate count, but we wouldn't be a bit surprised to find that the feds' unemployment number hides as much as it reveals. After all, as near as we can tell, we're still in a period of private sector de-leveraging. That means fewer jobs. The mistakes of the bubble era must be un-done. Jobs must be eliminated. And employment won't rise again until the private sector can find ways to put people back to work at a profit.

But how?

What a delight it would be to have some inflation! Yes, dear reader, that's the real reason that fiscal stimulus appears to work. That is, that's the reason inflation can sometimes boost employment. It creates inflation. And inflation lowers wages. Lower wages make it cheaper to hire people. And they make US output more competitive on the world market - so exports tend to increase.

And one other thing. Inflation reduces the debt burden. Right now, debt is crushing the private sector...and the whole economy. But it will soon crush the public sector too. Nouriel Roubini says government debt is a "ticking time bomb." He's right.

That's why the government would love to have some inflation. Trouble is, inflation is harder to conjure up than you might think.

The more we see the Geithner, Bernanke, Summers team in action, the more convinced we are that the nation is headed for serious trouble.

Alan Greenspan was a knave, no doubt about it. But he understood how money worked. He was even a follower of Ayn Rand and a member of the libertarian 'collective' in New York. When he joined the president's council of economic advisors, Rand was on the scene. She said she had 'her man in Washington.' Trouble was, her man was a sell-out. His convictions were no more solid than ocean foam. They disappeared as soon as he got to the capitol. After that, he spoke in gobbledygook sentences that no one could decipher...and played the game.

Here at The Daily Reckoning we don't particularly like sell-outs, hypocrites and turncoats. We have our principles. And we wouldn't turn our back on our own convictions. Not for less than, say, $10,000.

The current team, on the other hand, are not sellouts. They're fools. They really have no idea what is going on. They think the problem with the economy is that consumers and bankers have gotten the jitters. They believe that a lack of demand is the root cause of a weak economy. So, all they have to do is to replace the missing private demand with demand from the government.

Anyone who bothered to think about it seriously for a few minutes would see that demand is not what causes an economy to grow...or what makes people prosperous. People always have demand for goods and service. Demand is always, theoretically, unlimited. It's the purchasing power that is lacking.

And purchasing power comes from earnings - both accumulated and current.

The key to a real recovery is to increase earnings - not increase demand/consumption. How do you do that? Well, if you're a government economist, you can't do a bloody thing but get out of the way. You have to let private businesses find ways to make money...which they then share with their employees.

Think Summers, Bernanke and Geithner will get out of the way? Not a chance...

Bill Bonner
for The Daily Reckoning Australia

• Who Can Blame Consumers for Being More Ready to Spend Money?
• Mr. Market Never Gets a Say on Government Jobs
• Government Spending Spree
• Government Debt
• Bankers Take Money From the Government and Use it to Speculate

ON 18 SEPTEMBER 2008 - three days after the collapse of Lehman Bros. - US regulator the Securities & Exchange Commission issued what it called an "emergency order" banning the short-selling of 799 financial stocks.

The order, running for 10 business days, came amid of flurry of short-selling restrictions - first demanding that all stock sold short be delivered to the buyer within 3 days, and then that all current open shorts be closed - made under emergency powers granted by the Depression-era Securities Exchange Act of 1934. It came two months after a separate ban on selling short the stock of Lehmans, Fannie Mae, Freddie Mac and 16 other securities firms.

Some success that proved.

"Unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions, unrelated to true price valuation," said SEC chairman Christopher Cox the next day, announcing the new defense of 799 ailing firms' capital base.

"The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets."

News that "market manipulation" was over, along with the forced rush to cover existing shorts, saw the sector jump more than 12% higher in one day as priced by the SPDR Financial Select ETF (XLF). You can see that day's jump in trading volume on the chart below, too.

Without the selfish hedge-fund black hats knocking perfectly sound companies lower, America's finest financial firms could get back to making money rather than hemorrhaging risk capital at the NYSE. Or so the logic (or what passed for logic) ran in Washington.

Yet by the time the Sept. order expired at midnight 2nd October, US financial stocks were back where they'd started before the SEC invoked this power. Two days later, they'd sunk to a fresh six-year low. By the end of Oct. they had fallen a further 21%...and were on their way to a loss of more than two-thirds by the following March - and all this with the anti "naked shorts" regulations still firmly in place.

Glancing back from the comparative calm of late autumn 2009, you might think that short-selling was perhaps contained by the order. The plunge was worse after it lapsed, after all, and the market didn't quite get to zero. But even when extended for four months or more elsewhere, similar bans around the world met with similar success.

The UK's Financial Services Authority lifted its short-selling ban - begun the same day as the SEC's order (and just as the Bank of England was pumping £61.6 billion, then $110bn, into the two largest failed banks) - on 16th Jan. 2009, by which time Britain's banking stocks had lost a further 61% of their value. Greece didn't get round to lifting its short-selling ban until 1st June 2009. Nor did South Korea. Australia was a week earlier, but by then the ASX-200 Financial index stood lower by one-fifth from just after the Lehman's collapse, albeit turning higher from the 34% drop to March '09.

The financial authorities in Vietnam, meantime, have been facing a different kind of problem - and chosen to meet it with a different kind of exchange control, too. The results to date, however, look equally equivocal.

Vietnamese consumers, suffering cost-price inflation of 25% by June 2008, were exchanging capital in the form of Dong into gold. Indeed, the world's largest market for investment gold bars outside the West during the first quarter of last year, Vietnam had already imported 60 tonnes of gold - paid for by a net outflow of $1.8 billion - during the first five months of the year. That was twice the pace-by-volume set in early 2007.

So the communist authorities, rather than addressing the plight of the Dong - which had already slipped further in the black market, despite an outright devaluation of the regime's US-Dollar peg two weeks before - opted instead to ban gold imports altogether. Because if buying gold was how people were choosing to defend themselves, then just like US funds short-selling the lamest financial stocks, they must in fact be part of the problem. Right?

Doubling import duties on gold to 1% in May 2008 hadn't helped. An outright ban remained to be tried. But the upshot? Seventeen months later - and with domestic gold owners blamed for profiteering as new would-be buyers sought refuge in gold - the ban was lifted at last. By early Nov. '09, however, Vietnamese gold prices stood some 42% higher, thanks both to the rising international price but more especially to the lack of inflows of metal.

The Dong, in short, had lost ground to the Dollar but sunk versus gold. And all along, Vietnam's appetite for new metal was part-sated regardless. The GFMS consultancy reckons more than 30% of gold imports to Thailand found their way across the border during the second-half of 2008.

Even with new gold now flowing into the country, gold still trades above 27.58 million Viet Dong per tael - south-east Asia's variable "street dealing" unit, equal to 1.2 troy ounces in Vietnam. That puts the domestic cost of gold roughly $52 an ounce higher than international spot pricing according to figures from Vietnam Gold Market News...which is down from the $150 premium achieved just before Hanoi relented, but still a marked premium for Vietnam's capitalist-communist citizenry.

"Taking advantage of unstable international gold prices and peoples' concern that prices will rise further, local speculators have [still] pushed prices to a very high level," as central bank governor Nguyen Van Giau said when he lifted the import restriction two weeks ago.

Aimed at "stabilizing the gold market and preventing speculation", the central bank's statement in fact helped send the Vietnamese Dong to a 16-month low on the currency market, down 6.4% on 1-year forward contracts, thereby pushing local gold prices higher again!

Since then, and with the currency still falling, Hanoi's foreign currency reserves have now shrunk by one quarter to $16.5 billion from the start of this year. Fighting to defend its Dollar-peg in the market - by buying up Dong with overseas money - the government admitted that it's target trade deficit for 2009 was already seven-eighths spent with another two months to go. So this week, it opted to raise interest rates - the obvious route to stemming a currency run - but not until December. It's also devalued the Dong yet again, down 5.44% from Thursday morning per Dollar, but still only playing catch-up with the black market exchange rate once again.

Commercial banks are meantime banned from trading in Dollars if the Dong moves 3% or more away from its target exchange rate. Quotas also remain in place for importing gold, with licenses for 10 tonnes issued this week according to Reuters. Some 6.8 tonnes of bullion have already been imported, the state TV station reported today, since the import ban was lifted a fortnight ago.

"These imports will have an impact on the local gold market," reckons Van Giau. But then he also says the latest Dong devaluation and interest-rate hike - from 7% to 8% -represent a "solution to strongly intervene." Whereas HSBC's chief Asian economist, Robert Prior-Wandesforde, sees Vietnamese interest rates rising further to 11% by year-end, while GFMS analyst Rhona O'Connell notes how "The change in the Vietnamese government's policy over gold imports [in fact] illustrates that demand remains strong at grass roots level."

Oh sure - government policy helped stem the last global bull market in gold. Raising the margin requirement on US gold futures took the heat out of the metal's parabolic surge of late-Jan. 1980, coinciding with what then proved a 28-year record at $850 an ounce. But unlike blaming short-sellers for the collapse of the banks, it was only by addressing the true fundamentals that the authorities could hope to reverse the flight into gold.

Double-digit returns offered to cash-in-the-bank killed the need to defend savings with metal. And this time around, not even import bans could take the heat out of Vietnamese hoarding.

Adrian Ash
for The Daily Reckoning Australia

• Vietnam Stock Exchange Plunges, Investors Trading in What Little Dongs They Have
• What is Short Selling?
• Vietnam: The Next Bubble in the Emerging Markets
• The Practice of Naked Short-selling
• Short Selling Ban May Kick Off Market Liquidation

Harassing us!

Recall that last week, we reported the latest news on the SEC. Investigators wondered why the agency had let Madoff run billions in suspicious trades without ever checking them out. The SEC responded by saying it lacked sufficient resources. Then, New York Senator Schumer said he would propose a measure to increase the agency's spending power by 75% - by allowing it to shake down the financial industry directly, rather than going to Congress for a budget allocation.

Which still leaves open the question of what the SEC was doing when it should have been making Madoff do the perp walk. We have the answer: the SEC was harassing us.

Yes, hard to believe that they would target your poor, innocent editor. And they didn't, not directly anyway. Instead, they targeted one of our colleagues. This was a couple of years ago...when Bernie Madoff was at the top of his game.

We haven't mentioned it in this space...on the advice of our lawyer. Judges don't like it when you "try a case in public." And the case still isn't settled.

But we won't discuss the merits of the case...only the circumstances around it.

This will help us understand what the SEC is really up to...and why the hope of regulating fraud out of existence is as vain and futile as trying to clear out a bar by using foul language.

Here's what happened. One of our researchers discovered what he thought was a great investment opportunity. He called the target company and spoke to a VP in charge of public relations. What he heard convinced him that he was on to something, so he published a recommendation, sending a copy of it immediately to the company.

He got no response from the company. But a few months later, the SEC knocked on our door. What was their beef? That we had misled investors. How so? In our report, we told readers what the VP had told us. We carefully called it "insider" information...putting the word in quotes to let readers know it wasn't the same as the forbidden 'inside information.' Anyone could have found out the same thing if he had just called the company, read the published reports, and put two and two together.

Our caution was lost on the SEC. They didn't see the difference between "insider" information and inside information. What's more, the fellow at the target company denied he had said what he had said. Curiously, he made no objection when the report was published; the objection came after the SEC started snooping around.

The SEC wanted blood. They thought they could get an easy win against a little guy in Baltimore. They wanted us to turn on our own associate...to stop defending him and cop a plea. Obviously, we couldn't do that. We stood behind our man.

Then came a quirky turn of events. Both the researcher and your editor's company were charged with what was effectively a new crime - a federal case, no less. The SEC, remember, is supposed to be protecting investors from stock fraud, manipulation, and 'insider trading.' But there was never any allegation of manipulating a stock or insider trading. Instead, the agency charged us with NOT having inside information. We never traded in the stock at all...or manipulated it in any way. So the feds alleged that we did not have any inside information to trade on...and that therefore our representation - of having "insider" information (in quotes!) - was a kind of fraud.

And the whole case turned on a telephone conversation between a stock market analyst and a public relations guy in a company. One said one thing; the other said another thing. Reporters make mistakes all the time; so do their sources. But this was the first time the government made a federal case out of it.

We believe our analyst. The SEC believed the other guy and spent millions trying to prove that our fellow lied. No one who bought the research report on the stock complained, let alone threatened a lawsuit. Prior to any SEC probe, refunds were issued to anyone who asked (most did not). Yet the SEC, protector of the public interest, spent years...and millions...on the case - while Bernie Madoff was stealing billions from his clients.

Case against your editor's company: judges ruled that we were innocent.

Case against our colleague: still undecided at the appeals court.

Case against SEC: guilty of negligence, dereliction and humbug.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• Madoff Astonished SEC Didn’t Verify His Claims
• Why The SEC Sued Me – And Why You Should Care
• Rising in Defense of Goldman Sachs
• Social Security a Bigger Scam Than What Bernard Madoff Schemed
• Real Estate Brokers: The Latest Victims of the Housing Crunch

Front page in The Washington Post: "The Madoff Files...A Chronicle of SEC Failure..."

According to the Post, Madoff was "astonished" that the SEC didn't bother to verify whether he was actually doing the billions of dollars worth of trades he claimed to be doing.

In response, the SEC says it "doesn't have the resources" necessary to keep an eye on "the exploding number of financial firms."

And according to today's International Herald Tribune, Senator Schumer has suggested a way for the SEC to increase its budget by 75%. The idea is to turn it into a kind of tax farmer...with the right to earn money directly from the industry it is supposed to regulate. There's an idea for you - a very bad one. It would give the SEC more money to waste...allowing it to hire more people to meddle in the marketplace...giving investors more illusions that they are playing 'on a level playing field'...and ultimately corrupting the financial sector even more than it already is.

Which brings us back to our original question: what was the SEC doing?

The Madoff group was very suspiciously doing billions in trades with remarkable profitability and consistency. Every trader in New York knew something was up. What was so intriguing to SEC eyes...when they weren't keeping their eyes on Madoff?

We can tell you. Us! Your editor and his colleagues. No kidding. We'll give you the full story next time. Promise.

Bill Bonner
for The Daily Reckoning Australia

• Who Was the SEC Harassing Instead of Madoff?
• Bernie Madoff is a Giant in His Field
• Gold Coins for $870-$890 An Ounce
• Bernie Madoff and the SEC
• The Dow Gives Up the Post-ZIRP (Zero interest rate policy) Gains

But first, what the stock market and the economy are doing...

In the past two days, the price of gold has shot up more than $40. It's now near $1,000 an ounce.

Why? We don't know. Rumors, talk, noise...there's plenty of that. But as for why investors are suddenly putting so much money into gold, we'll have to wait to find out.

But should you buy gold now? The answer is simple: yes and no.

The Trade of the Decade is still buy gold/sell stocks. And the decade isn't over. If you have US stocks, this is a good time to sell. The Dow went up 63 points yesterday - a weak bounce after several days of losses.

This is no time to hold stocks - for the reasons we outlined yesterday.

But gold? Should you buy gold and hope to get rich when gold shoots up to $3,000 an ounce? A bad idea, in our opinion. You should buy gold to protect your assets. The risk is in the paper money...because they can create as much of it as they please. And they're under pressure now to create a lot. You buy gold as insurance against inflation, a dollar bust, a bear market in stocks and bonds, or a financial crisis. Gold is nature's money. It is better than manmade money. Because, with gold, what you have it what you've got. They can't artificially depreciate it or easily increase the quantity of it. That's why the feds don't like it. It won't support their cause du jour - whether it is a war, a bailout, stimulus, health care, or whatever. Gold doesn't cooperate with the financial engineers. That's why it's a good thing to hold when you think the financial engineers are making a mistake.

But our view at The Daily Reckoning headquarters is that while the engineers are making a mistake, they not very good at it even when they're making a mistake they're good at. Typically, they're pretty good at causing inflation. But now the credit bubble is deflating, not inflating. It will take them a few years before they become reckless enough to move prices up again. And then, they'll probably overshoot their objectives considerably.

In the meantime, there's no inflation to speak of...no dollar crisis...no bond bust. So we wouldn't expect the price of gold to soar...not just yet. That's the big surprise - that this period of deflation will last longer than expected. Then, when it begins to seem permanent, inflation will suddenly come roaring back.

By then, most investors will have given up on gold...especially those who were speculating on it going to $3,000. It will go to $3,000, but only after speculators have dropped their positions.

So far, everything is happening just as we expected. After more than half a century of boom, we are now in a bust. People need to downsize...cut back...and live a little less large than they had in the boom years. That means...well...just what you'd expect.

Wasn't it just yesterday that we reported that Florida was losing population? People just aren't retiring like used to. Here's comes the evidence:

From The New York Times comes this headline: "Older US Workers Put Retirement on Hold."

The Times tells us that older people are continuing to work because they don't have a choice. They can't afford to retire. So they hold onto jobs, which is another reason it's so hard for the unemployed to find a job. Those who have them aren't giving them up. A Bloomberg report today, for example, tells us that more people are applying for job benefits than expected. Another tells us that millions of people are running out of benefits before they find a job.

Just what you'd expect, in other words. Here are some of the other things we expected:

1. Unemployment is still rising.

"Investors discouraged by US jobs report," says a headline at the International Herald Tribune. To make a long story short, August was a disappointment. More jobs were lost than expected.

We don't know how many jobs we should expect to lose. But we're in the downhill part of the credit cycle; we're bound to lose a lot of them.

2. Sales are falling.

That's another thing we would expect. People have to cut back. So...they do cut back. Sales go down. That means fewer sales and fewer jobs. No point in making things, shipping them and retailing them if no one is buying them, right?

3. What else would you expect? Lower house prices? Check. Higher savings rates? Check. More bankruptcies? Check. Falling prices? Check.

Isn't it nice when things work out "as they should?' Check.

Bill Bonner
for The Daily Reckoning Australia

• Should You Buy Stocks Now to Take Advantage of Bull Market?
• Economy Has to Grow at 1% to Stay Even With Population Growth
• The Bailout is Approve So Now It’s Time to Buy Gold
• You Buy Gold When the Government is Making a Mess of the Monetary Situation
• You Can Lead Investors to Liquidity but You Can’t Make Them Buy Stocks

The current economic crisis, which was instigated by the government's central bank and its boom-and-bust monetary policies, among other interventions, has once again been blamed on "too little regulation" and too much freedom.

Will Americans ever catch on to this biggest of all of government's Big Lies?

When the Pilgrims came to America, they nearly starved to death because they adopted communal agriculture. When William Bradford, leader of the Mayflower expedition, figured this out he reorganized the Massachusetts pilgrims in a regime of private property in land. The incentives created by private property promptly created a dramatic economic turnaround and the rest is history. Most history books ignore this reality, however, and blame the starvation crisis of the Pilgrims on corporate greed on the part of the Mayflower company.

After the American Revolution, it was imperative to build roads and canals so that commerce could expand and the economy thrive. George Washington's Treasury secretary, Alexander Hamilton, declared in his famous Report on Manufactures that private road and canal building would never succeed without government subsidies. President Thomas Jefferson's Treasury secretary, Albert Gallatin, concurred. Meanwhile, private capital markets and the private "turnpike" industry were busy financing thousands of miles of private roads without any governmental assistance. When government did intervene in early-American road building, it was a financial catastrophe almost everywhere, so much so that by 1860 only Missouri and Massachusetts had not amended their state constitutions to prohibit the use of tax dollars for "internal improvements."

Americans have been taught by their government-run schools that the post-1865 Industrial Revolution was bad for the working class, which made government regulation of work and wages, and the creation and prospering of labor unions necessary. In reality, people left the farms for factories because the latter offered far better wages and working conditions. Between 1860 and 1890, real wages increased by 50 percent in America, as myriad new products were invented, and made available to the common working person thanks to low-cost, mass production. It was capital investment that dramatically increased the productivity of labor, allowing hours worked to decline from an average of 61 hours per week in 1870 to 48 hours by 1929.

Higher worker productivity, fueled mostly by capital investment by entrepreneurs and private investors, also made it less necessary for families to force their children to work. Child labor was on the wane for decades before government got around to regulating or outlawing it. And when it did so it was to protect unionized labor from competition, not to protect children from harsh working conditions.

The "robber barons" of the late 19th century robbed no one. Most of them made their money by providing valuable - if not revolutionary - goods and services to the masses at lower and lower prices for decades at a time. John D. Rockefeller, for example, caused the price of refined petroleum to drop from 30 cents per gallon in 1869 to 8 cents in 1885, and continued to drop his prices for many years thereafter. James J. Hill built the most efficient and profitable transcontinental railroad without a dime's worth of government subsidy. In return for their remarkable free-market success the government prosecuted both of these men, kangaroo court style, under the protectionist "antitrust" laws. The real "robbers" were politically connected businessmen like Leland Stanford, a former California governor and senator, who succeeded in getting laws passed that granted his company a monopoly in the California railroad business.

The federal antitrust laws were passed beginning with the Sherman Antitrust Act of 1890 because the government informed Americans that industry was becoming "rampantly cartelized" or monopolized. In reality, prices everywhere were plummeting as new products and services were being invented everywhere. The entire period from 1865 to 1900 was a period of price deflation. As I show in How Capitalism Saved America, all of the industries accused of being monopolies by Congress in 1889- 890 had been dropping their prices for at least a decade thanks to vigorous competition. And it was not a result of the idiotic theory of "predatory pricing." No sane businessperson would intentionally lose money for decades by pricing below cost with the hope that he would somehow frighten away all competition forevermore.

Everyone "knows" that President Herbert Hoover was a staunch advocate of laissez-faire economics, and it was his lack of interventionism that caused the Great Depression. This is the biggest governmental lie in the history of America. Hoover was a "progressive" (as today's socialists, also known as "Democrats," have taken to calling themselves).

Hoover strong-armed corporate executives into raising wages at a time when wages needed to adjust downward in the free market in order to minimize unemployment. He devoted 13% of the federal budget to a failed "stimulus" program of pork-barrel spending and imposed some of the biggest tax increases in history to fund it all. He was a protectionist who signed the notorious Smoot-Hawley Tariff Act, which increased the average tariff rate to nearly 60 percent and spawned a worldwide trade war that shrunk world trade by two-thirds in three years. He cartelized the agricultural industry with "farm boards" that began the insane practice of paying farmers for not growing crops or raising livestock. He pioneered the politicization of capital markets by creating the Reconstruction Finance Corporation. And he ranted and raved against "greedy capitalists" while launching numerous government "investigations" of investors and the stock market. FDR's top domestic advisor, Rexford Tugwell, said that his fellow New Dealers "owed much to Hoover," who began many of the policies that they simply extended.

Every time the price of gasoline goes up significantly, Congress convenes a Nuremburg Trial-style inquisition of oil-company executives. This practice began in the 1970s when the government's own foolish price controls on petroleum products caused massive shortages, and it needed someone to blame. Oil company executives are never praised when gasoline prices fall, as they have in the past year from over $4/gallon to under $2/gallon in many parts of the United States.

Most recently, the current economic crisis is said to be caused by the "excesses" of economic freedom and "too little regulation" of the economy, especially financial markets. This is said by the president and numerous other politicians, with straight faces, despite the facts that there are a dozen executive-branch cabinet departments, over 100 federal agencies, more than 85,000 pages in the Federal Register, and dozens of state and local government agencies that regulate, regiment, tax, and control every aspect of every business in America, and have been doing so for decades.

Laissez-faire run amok in financial markets is said to be a cause of the current crisis. But the Fed alone - a secret government organization that is accountable to no one and which has never been audited - performs hundreds of regulatory functions, in addition to recklessly manipulating the money supply. And it is just one of numerous financial regulatory agencies (the SEC, Comptroller of the Currency, Office of Thrift Supervision, FDIC, and numerous state regulators also exist). In a Fed publication entitled "The Federal Reserve System: Purposes and Functions," it is explained that "The Federal Reserve has supervisory and regulatory authority over a wide range of financial institutions and activities." That's the understatement of the century. Among the Fed's functions are the regulation of

• Bank holding companies
• State-chartered banks
• Foreign branches of member banks
• Edge and agreement corporations
• US state-licensed branches, agencies, and representative offices of
  foreign banks
• Nonbanking activities of foreign banks
• National banks (with the Comptroller of the Currency)
• Savings banks (with the Office of Thrift Supervision)
• Nonbank subsidiaries of bank holding companies
• Thrift holding companies
• Financial reporting
• Accounting policies of banks
• Business "continuity" in case of an economic emergency
• Consumer-protection laws
• Securities dealings of banks
• Information technology used by banks
• Foreign investments of banks
• Foreign lending by banks
• Branch banking
• Bank mergers and acquisitions
• Who may own a bank
• Capital "adequacy standards"
• Extensions of credit for the purchase of securities
• Equal-opportunity lending
• Mortgage disclosure information
• Reserve requirements
• Electronic-funds transfers
• Interbank liabilities
• Community Reinvestment Act subprime lending requirements
• All international banking operations
• Consumer leasing
• Privacy of consumer financial information
• Payments on demand deposits
• "Fair credit" reporting
• Transactions between member banks and their affiliates
• Truth in lending
• Truth in savings

That's a pretty comprehensive list, the result of 96 years of bureaucratic empire building by Fed bureaucrats. It gives the lie to the notion that there has been "too little regulation" of financial markets. Anyone who makes such an argument is either ignorant of the truth or is lying.

Regards,

Thomas DiLorenzo
for The Daily Reckoning Australia

• How Will the Next President Handle This Dire Economic Crisis
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• Government Guaranteed Depression?
• Millions of Zimbabweans Face Starvation due to Nationalisation caused by Hyperinflation

Poor Bernie. The man has been ordered to spend 150 years in the hoosegow. What for? Who did he kill? A century and a half seems a little excessive for a financial crime. You could hold up three liquor stores and rape a whole convent and still not get 150 years. With a little bit of good lawyer-ing, a history of child abuse in the family, and good behavior in the big house, you'd be back on the street in 18 months.

But all the papers seem delighted. "Locked up for Life!" says one of today's headlines. The judge "threw the book at him," says another. His victims wanted him to get no mercy. The judge gave him none, imposing the maximum sentence. He is "extraordinarily evil," said the man on the bench.

Justice has been done. Right?

Here in the building with the gold balls on the roof, we're not so sure. We stand up for lost causes...die hards...and scalawags. Besides, we're not convinced that Bernie is extraordinarily evil at all. He seems much more like an ordinary evil to us.

They say he defrauded investors out of $65 billion. The amount is unusual, but the crime is as common as income tax evasion. Who gets 150 years for evading income taxes? Heck, in civilized countries it's not a crime at all - but a civil misdemeanor, subject to fine and retribution, not punishment.

But didn't he lie to investors? Well, yes...he exaggerated the returns investors were likely to get from his fund. But if you put every fellow on Wall Street who does that in jail, you wouldn't have any room for stick-up men and wife beaters.

Isn't he the biggest financial scammer of all time? Well...he's the title-holder now. But he has a lot of competition close on his heels. Bernie's crime was taking money from people under false pretenses...and then being unable to give it back to them. How is that different from the financing activities of the US government?

This year alone, the feds will borrow 50 times as much money as Bernie managed to take in during his whole 20-year career. They can only pay it back by borrowing even more money from more lenders. This is not very different from the typical "Ponzi" scheme, except that it's the government doing it. Eventually, the suckers are going to lose a lot of money.

And when you balance Bernie's sins against his virtues, we're not sure the man doesn't come out at least as well as many of his accusers. While Bernie was pretending to make his investors rich, the SEC was pretending to protect them from Bernie. In fact, neither were really doing what they claimed. Which is to say, both are guilty of ordinary evil.

As we pointed out yesterday, nothing is as dangerous as good luck. Madoff was not extraordinarily evil; he was just extraordinarily lucky. He was plying his trade when the feds were pumping up the biggest financial bubble in history. No wonder so much hot gas came his way. His luck ran out when the bubble popped. And now a court has found him guilty of fraud and a judge has ordered him locked up for a period equal to roughly the time between the end of the US War Between the States and the resignation of Richard Nixon.

While Bernie is behind bars, the SEC and FED officials are still at large. Both are clearly guilty of dereliction and negligence.

But, what is the point of keeping Madoff in prison? He represents no threat. Rather than pay $30,000 per year to keep him locked up, we suggest that he be forced to do community service work. He should be pressed into service as the next head of the Federal Reserve after Ben Bernanke's term expires in December. With Madoff in the big office, there would be no longer any illusions about what sort of bank the Fed is running.

Illusions are aplenty. In the popular mind, the slump of '07-'09 is coming to an end by Christmas. Practically everyone says so - including Ben Bernanke himself. All the bailouts and stimuli are paying off, they think. Soon, it will be business as usual.

Yesterday, the Dow rose 90 points. Oil rose a bit too - to $71. The 10- year T-note rose too...with a yield falling below 3.5%. And gold held steady at $940. If the markets know what happens next, they're keeping mum.

But this morning comes news that the Dow is off more than 100 points on news of a consumer confidence pullback. Apparently consumers are getting concerned about the jobs situation and the supposed 'economic recovery.'

We have already told you, dear reader, why we do not expect business as usual ever again in our lifetimes. From WWII to 2007, the world economy had a single important driver - the US consumer. At the beginning of that period, he consumed because he earned. By the end of it, he earned because he consumed. That is, the more he was willing to borrow and spend, the more the whole world economy seemed to bubble up.

But now, that era is over. As Jeff Immelt, head of GE says, "You're going to have a world where the US consumer won't be the main driver."

Clearly, the US consumer no longer has the positive effect they once did on the US economy...and it's only going to get worse from here.

"Where was the SEC?" asked a sign outside of the courtroom where Bernie Madoff was sentenced.

Good question. And guess what. We have the answer. While Madoff was taking in his billions...and the biggest financial bubble was preparing to explode...the SEC was asking questions - of your editor!

Yes, dear...dear reader. All over the world, responsible authorities are demanding a more muscled approach to financial regulation. "Bernie Madoff's life sentence should galvanize regulators everywhere," says today's TIMES of London editorial, speaking for the majority.

But it was not muscle that kept the SEC off Madoff's case. At the very moment when a freelance informant was tipping off the SEC about Madoff...the agency's goons were beating up innocent victims...and grilling innocent publishers:

The New York Times reports:

"The Boston office of the Securities and Exchange Commission began the investigation around 2001. Three years later, formal charges were brought against Mr. [Richard] Kwak and seven others. By the time the case went to trial, in 2007, only three defendants were left; the others had settled with the S.E.C.

"In that 2007 trial, Mr. Kwak and another defendant, Stephen J. Wilson, were cleared of one charge, with a hung jury on the remaining charges. (The third defendant, who foolishly acted as his own lawyer, was found liable and fined $10,000.)

"The S.E.C. retried Mr. Wilson in 2008. He was cleared. Finally, in March 2009, the S.E.C. retried Mr. Kwak, with the same result. The jury took less than four hours to exonerate him.

"Mr. Kwak's life is now in tatters. He is around $1 million in debt and suffers from emotional problems. He has struggled to stay out of bankruptcy. Although he is still a broker - he certainly can't afford to retire - he long ago lost his job with Morgan Stanley, where he had spent several decades without so much as a hint of impropriety. Needless to say, his business is a small fraction of what it once was.

"'It pretty well wiped me out,' he said a few days ago. He is extremely bitter."

The story of our own brush with the SEC will have to wait for another day. It is still subject to a gag order imposed by our own lawyers. The case is still undecided - four years later. We can't tell the whole story yet...but we can pass along the moral of it now: anyone who believes government regulators will stop investors from losing money to fraudsters is dreaming...

Stay tuned.

Bill Bonner
for The Daily Reckoning Australia

• Who Was the SEC Harassing Instead of Madoff?
• Madoff Astonished SEC Didn’t Verify His Claims
• Put Bernie Madoff at the Treasury!
• Bernie Madoff is a Giant in His Field
• Social Security a Bigger Scam Than What Bernard Madoff Schemed

We don't know the details, so we wouldn't rush to judgment. But our guess is that the SEC is trying to recover its reputation by putting on a few show trials. The SEC has a pack of watchdogs on the payroll. But somehow thieves stole every decent part in the junkyard without a single one of these mutts bothering to bark. Now, they're indignant...and out for justice!

Did Mozilo do something wrong? We don't know. But the question would never have come up if it hadn't been for the crisis in housing debt. As long as housing was going up, everyone was happy with Countrywide's business model. Yet didn't everyone know that the mortgage finance business was a dangerous place to be at the end of a housing bubble? Didn't the SEC know it, too? If we recall correctly, Mozilo said so himself...

But the SEC watchdogs slept through the biggest heist in history. And now the people who lost face and lost fortunes are eager to pin the blame on someone other than themselves.

But that's just part of the whole process of deleveraging. That's how capitalism works. People lose money...then they lose jobs...and houses...and businesses go into chapter 11 and a few of their CEOs go to jail.

All that takes time.

Bill Bonner
for The Daily Reckoning Australia

• Seventh Biggest Drop in Wall St History
• First Drop in Consumer Spending in Decades
• Biggest Bankruptcy in Wall Street History
• US Federal Government Ran the Biggest Deficit in History
• World Economy Has Never Been in a Fix Like This

It's the dumb money that thinks you can correct a generation-long period of credit growth in 24 months...with less than 10% unemployment...

Stocks have now been in a rally for three months. The longer this goes on, of course, the dumber money gets. People come to think the bounce is a permanent bull market.

Yesterday, not much happened. Stocks held steady. Oil too. Gold fell $8...closing at $952. And the dollar rose to $1.39 per euro.

But while the dumb money has its eyes on the stock market, the smart money is watching the economy.

Unemployment has risen to 9.4 million in the United States. Experts think the rate of job losses is slowing. But month after month, more and more people are not collecting wages. Instead, they're coming to rely on handouts from the government. The press reports that one in every six Americans is now on some form of government life-support. (More on that...tomorrow...)

Same thing in the housing sector. Robert Shiller says the housing slump has already knocked prices down 32%...and has a long way to go. This alone guarantees a long period of adjustment. Bad decisions - usually those with huge debt bombs attached - will blow up...then they need to be cleaned up...and then, after the destruction, comes the constructive rebuilding. All that takes time...years.

People whose houses are going down in price...and whose incomes are falling...do not buy more stuff. Sales go down...profits go down...and dividends go down. Why would investors buy stocks when earnings and dividends are falling? Good question. Pull your shorts up, dear reader...pull your shorts up.

House prices are still going down - but not as fast. Still, big resets, defaults and foreclosures are still on the way - in prime and Alt-A mortgages.

Meanwhile, when companies don't sell...they don't ship either.

The trucking industry says traffic is off 13% from a year before - the biggest drop in 13 years.

Airplanes are carrying 21% less cargo. And the commercial airline industry says it is losing $9 billion this year.

As for shipping...well, don't even bring it up. Shipping has been in a catastrophic slump since last year - with cargo rates down 90%.

Obvious conclusion:

"Every smart trader I know is massively short the stock market," says Jeff Clark.

You should be short the stock market too...or look to the 'anti-stock market'. This market can never go bust...and it doesn't care about earnings reports, clever accounting, analysts' upgrades or downgrades. But the best part of this 'anti-stock market' is the virtually unlimited profits. In fact, the nastier the stock market gets, the more money readers have the chance to make in the Anti-Stock Market. Just ask the readers who've already seen 85%, 72%, 67%, 100% and 80% gains so far in 2009.

Bill Bonner
for The Daily Reckoning Australia

• We’re Not Threatened by Inflation but by Depression
• Two Ways to Deleverage an Economy
• Three Kinds of Money in the Marketplace
• What’s a Consumer Economy Need in Order to Keep Growing?
• Stock Markets All Over the World are Getting Whacked