Remember those terrible 1980s cereal commercials? They were almost as bad as the cereal itself.

Trix, Captain Crunch, Cookie Crisp, Frankenberry... they might as well have called the stuff "chemical-coated sugar puffs." It makes you wonder whether General Mills had a secret deal with the American Dental Association to prop up the cavity-filling business.

Anyhow, those Saturday morning breakfast cereals remind your humble editor of government stimulus: Lots of sugar... lots of hype... 98% artificial coloring and flavoring... and pretty much zero nutritional value.

In keeping with the analogy, Fed Chairman Ben Bernanke is like the white rabbit from the Trix commercials. You know, the one who always got foiled with the tagline: "Silly Rabbit, Trix are for Kids!"

Except in Bernanke's case it would be: "Silly Chairman, Stimulus is for Gold Stocks!"

Here's the deal as your humble editor sees it:

• The U.S. economy's biggest problem is structural unemployment.
• There are various causes for this, but mass unemployment is the effect.
• Urgent calls of "more stimulus" to improve the unemployment picture won't help.
• In fact, such stimulus is mainly likely to help gold and gold stocks.
• Stick with me here as we walk through the logic...

Keynesians With A Hammer

You've surely heard the old saying, "To a man with a hammer, everything looks like a nail." For proponents of Keynesian economic theory, the "hammer" equates to counter-cyclical government spending and deliberate attempts to prop up the economy.

To these guys, every single problem looks like a nail. They want to hammer everything with money.

Whether this money comes directly from the halls of congress or indirectly from the Federal Reserve, they don't really care -- as long as Uncle Sam blows the dough.

The lead hammer-wielder in the Keynesian camp is NYT columnist (and Nobel Prize Winner) Paul Krugman. For months Krugman has been pounding the table hard enough to nearly break it, demanding that the government shell out dough for another big-bucks stimulus package.

Krugman's latest is a call for congress to blow another $800 billion, saying the chronically weak economy proves his hunch that the first stimulus package wasn't big enough.

Other Keynesians of lesser stature basically follow Krugman's lead. For example, in his latest "Global Central Bank Focus," Managing Director (and die-hard Keynesian) Paul McCulley of PIMCO had this to say (emphasis mine):

The nation deserves better, especially the 8 ½ million Americans who have lost their jobs. When deflation is the fat tail risk, when the Fed is willing to monetize deficits, there is no excuse for the fiscal authority to resist running bigger deficits to directly finance job creation.

Spend money to create jobs. That's the magic formula. But it comes with a very big assumption.

The assumption itself comes in two parts: First, that unemployment is a problem that government can solve... and second, that government can solve this problem quickly through sheer fiscal will.

It is a very dumb assumption on both counts.

The unemployment issues plaguing the United States right now are structural. Not temporary, not quickly and easily solved, but deeply rooted with no simple fixes. The various root causes were a long time in the making. And no amount of stimulus will quickly solve the problem.

This, in part, explains why inept Keynesian policies of "pushing on a string" wind up doing jack squat for the real economy, yet act as a boost for safe haven asset classes like gold stocks.

The gold stock dynamic comes in because all the money that was supposed to help get the economy out of the muck just winds up debasing the currency and deteriorating the balance sheet instead.

And so, as investors look around and see a stagnant economy just sitting there like a flooded engine, they rationally assess the situation and decide that, in a time of globally coordinated fiat currency debasement, "gold in the ground" starts looking pretty good as a store of value.

More on that in a minute -- but first let's take a closer look at the jobs problem.

No Skills, No Mobility, No Recovery

There is a great article in the latest issue of The Economist titled "Bad Circulation," with the opening summary, "There is more to America's stubbornly high unemployment rate than just weak demand."

As laid out by The Economist, here are some of the biggest structural issues:

• The U.S. economy has suffered a "trauma, not a scrape."
• Extended unemployment benefits dampen willingness to look for work.
• Jobseekers "no longer have the skills demanded by employers."
• Upside down households "often opt to stay put rather than default."

The last two are the real killers.

In regard to the demand-skills mismatch, a curious phenomenon of the present environment is a worker shortage in certain specialty areas. The United States is still very good at high end manufacturing, for example... but there just aren't enough skilled applicants to fit the job requirements that this type of employment requires.

Job openings in the United States are increasingly of the specialized skill variety. There are multiple factors contributing to this. First, globalization has led to a migration of many low-skilled jobs overseas. Second, businesses small and large have used the downturn to "trim the fat" and remove as many unnecessary positions as possible. Third, because America's edge has long been productive labor rather than cheap labor, job requirements have steadily advanced in technical complexity.

This is an area where America has been falling behind for years. There was a large and growing "skill gap" in respect to the skill-based education of America's workforce long before the global financial crisis hit. It was just covered over for a while, in part because of all the extra jobs created by consumer spending and the real estate boom.

View Larger Chart

The above chart from McKinsey shows you how serious the problem is.

The three major "large employment sectors" of the U.S. economy are "construction," "financial activities," and "retail trade," accounting for more than 22% of U.S. jobs collectively. And what do those three areas all have in common? They have all been crushed by the retreat in consumer spending and the collapse of the real estate bubble.

We can't create jobs fast enough no matter what we do, because the gaping hole in the U.S. employment picture is far too big. Prior to the collapse of the housing bubble, a significant percentage of Americans were employed in relatively non-skilled sectors directly tied to the U.S. housing ponzi scheme.

Now I don't want to start any fights here. I am not at all saying that construction workers, real estate agents, or retail store managers should be classified as "not having skill."

But a defining factor of the jobs created in these areas is that the expertise is not truly specialized... except in the case of construction, where one's specialty may be out in the cold if the pace of building projects has ground to a halt.

So a big problem is that the "skills gap" between jobless Americans and higher specialization job openings is staring us in the face. Another big problem is that many jobless homeowners are unable or unwilling to relocate, because of the albatross around their neck that is an unsellable, upside-down home.

An awful hidden side effect of the housing bust is millions of upside down homeowners. A certain portion of these homeowners have chosen to say "screw it" and default on their mortgages, a trend we have talked about in these pages. But an even larger percentage of homeowners have decided not to default... to instead ride out the pain as best they can.

The macroeconomic problem with this strategy of "riding it out," though, is that the stuck homeowner can't go to where the jobs are. He or she has to stay with the house, even if the region is economically depressed. This lack of mobility is another killer for the jobs and employment picture, forcing homeowners to either go without jobs or take a lower end jobs in a depressed region of the country.

And of course, don't get me started on the baby boomer retirement effect, or the de facto looming bankruptcy of various cities and states...

The bottom line here is that cheap money will not help the jobs picture. Anyone who is banking on the Federal Reserve, the White House, Congress, or any combination of the three to "solve" the U.S. unemployment problem simply doesn't have a full grasp on the serious structural issues we face -- issues that cannot be solved with a simple cash infusion.

Stimulus is No Solution

As far as I can tell, Paul Krugman and his ilk must be smoking banana peels, because "Let congress spend more money" is a solution so bad it is comical. Those idiots in Washington can barely find their butts with both hands and a flashlight, and we are supposed to give them another $800 billion to throw at lobbyists? How is that possibly going to help?

The most sensible "stimulus" type solution would probably involve enacting large tax cuts for small businesses -- basically giving the money back to ordinary Americans. But even that would be far from an easy solution, because most Americans (and most small businesses) would logically respond to such an action by simply using the windfall to pay off more debt.

That idea is a pipe dream anyway, of course. The Keynesian hammer-wielders rarely (if ever) want to give money back to ordinary Americans. Instead they want the stimulus dollars to be spent by wise philosopher kings, presumably like Harry Reid and Nancy Pelosi, who of course know what's best in terms of how to get America back on track again.

Bad for Retail, Great for Gold Stocks

How is this playing out in the markets?

Well, as mentioned earlier, a wildly spraying firehose of government directed stimulus is meaningless news for the real economy, but good news for the likes of gold and gold stocks, which benefit from flight to safety measures as investors seek debasement-proof alternatives.

(Gold and gold stocks also have a strong record in deflationary periods for much the same reason. When all fiat currencies are being debased as a deflationary fire-fighting measure, gold becomes the only neutral currency alternative not subject to a printing press.)

In my trading advisory service, Macro Trader, we have been exploiting both of these
themes -- long gold stocks, short retail -- with strong results.

(Taipan Daily, too, has not been shy in beating the drum: On August 20th we noted that "Retail Stocks Are At Risk of Being Crushed," and my colleague Zach Scheidt gave gold stocks an excellent treatment in "Bringing a Howitzer to the Global Cash War."

As the macroeconomic environment tilts toward gold stocks and away from retail, you can see the performance disparity in the chart above, which contrasts the 90 day performances of the Market Vectors Gold Miners ETF (GDX:NYSE) and the Retail Holders ETF (RTH:NYSE).

For a number of weeks Macro Trader has been long GDX and short RTH via liquid options positions. As the chart shows, GDX is up 10% over a 90-day span, while RTH is down nearly 18% in the same time frame. These trends are likely to continue, for reasons as cited in today's note.

The hyperinflation discussion is still coming by the way. We'll dig into that on Friday...

With neither major party able to secure 76 seats in the lower House of Parliament on its own, and with postal and absentee votes to be counted in some key electorates, there may not be an official result for at least a few days, and maybe longer. It’s a hung parliament left twisting in the wind. But upon further review, we’d be surprised to see a big move in the currency or the share market in the next few days. Why?

Gridlocked governments have to govern from the centre, and they usually don’t get very much done. About the only certain result from a gridlocked government is no major legislation will be passed. That’s generally a positive result for everyone. If no news is good news, no news laws are good laws. In fact, we’d be willing to offer politicians a raise if they promised to do nothing. Put them on the dole!

That the market could rise in such a fluid environment may seem wacky. But it’s a wacky world. Given the nature of the status quo, with three of the independent members of the lower House former members of the National party and another National elected in Western Australia, it looks like the Mineral Resource Rent Tax is dead (MRRT).

Killing the tax might not be popular with constituencies on the fringe, but it’s about the only thing Labor could offer the three ex-Nationals as a sweetener for their vote. On the other hand, Tony Abbott could probably promise some kind of hybrid public-private national broadband network and that might do the trick. It doesn’t look a carbon tax or a revised emissions-trading scheme will figure in the horse-trading.

But then, we know nothing in general and even less about Australian politics. It has been an entertaining weekend though. And full credit to the Australian people for voicing their discontent with both parties.

One possible outcome, according to former Treasurer Peter Costello, is a weak government that hangs on for a year or so and then is forced to go back to the polls. And that’s assuming that one of the parties is able to form a minority government. What would this mean for the share market and the currency?

The longer there is uncertainty about the two major policy issues that affect the resource market — the MRRT and the ETS — the more negative it is for Australian stocks for 2011. We reckon a weak, one-year government makes it a trader’s market, but that’s about it. You can’t expect a big rebound in Aussie shares until the threat of a mining tax is “de-risked” from the investment picture.

That said, one man’s uncertainty is another man’s Africa. The longer Australian resource projects are in limbo over MRRT doubt, the more appealing similar projects in other countries look. Is there less political risk in Africa — the threat of constantly changing laws — than there is Australia? Probably not. But is there more? Probably not.

On an entirely different note, data out from the U.S. government last week showed official Chinese holdings of U.S. Treasury bonds from $938.1 billion September of last year to $843.7 billion in June of this year. That’s an 11% decline. How about that?

By not rolling over or adding to their U.S. bond holdings, the Chinese slowly reduce their vulnerability to a weaker U.S. dollar. They also, you’d think, slowly dial back their position as the largest creditor to the U.S. government. And who is buying the bonds the Chinese are buying less of?

If it’s the Federal Reserve, isn’t that a rich irony? The Fed would effectively be covering China’s retreat from the dollar. It would allow China to gradually exit its dollar position without causing a panic. And meanwhile, the end result — the destruction of the U.S currency — would be accomplished vie debt monetisation by the Fed. Pretty nifty. Nice work Fed.

When the house down the street was snatched under contract within hours of being on the market, for five times what the owner paid just a few years before. When the banks were handing out mortgages like they were free toasters. When Ma and Pa turned into house- flipping overnight millionaires. When everyone was living high on the proverbial hog.

If I had told you then that in just a few short years - on Sept. 16, to be precise - the big banking giants like Lehman Brothers, Bear Stearns, AIG and Merrill Lynch would come crashing down all at once... would you have believed me? If I had insisted that in one fell swoop, a banking-induced global economic crisis would reach pandemic proportions and would prompt the IMF to warn the world hindered on "brink of systemic meltdown"?

How about if I had told you in 2007 that next year Treasury rates would actually turn negative... that the U.S. automarket would siphon billions in bailouts from the government... or that we'd see triple-digit oil prices?

More recently, what if I'd said to you on May 5, 2010, that the next day the market would take a devastating 1,000-point dive for seemingly no reason?

My bet is, you wouldn't have believed me if I'd warned you of events like these. In fact, you might have laughed in my face and mumbled something about Chicken Little as you walked away.

But as you and I both know... these seemingly crazy events did happen.

All Bets Are Off

In our unique niche of the publishing industry, we're accustomed to headlines that shout from the rooftops that the sky is falling down. As a Taipan Daily reader, you're used to Adam's very strong (and generally negative!) predictions.

And I'm sure we do catch some flack from some of the more traditional "fair and balanced" publishing mainstream. They likely scoff at our "outlandish" claims.

But the truth is, many times these so-called wild predictions do come to fruition. And you need to be prepared.

Our founder Bill Bonner calls these events - the exceedingly unlikely hyperboles that quickly become catastrophic truths - "fat tails." Bill noted that "in the run-up to the year 2000, Americans rated the odds of system-wide computer failure first at zero... and then, after a Y2K failure was discussed in the media, as high as 50%."

Most people live - and invest - in the comfort of "normalcy." But on some level, they know that the future might not go so predictably. They know there is a chance, even as small as it seems, that they could lose their shirt completely... or score that elusive 1,000% gain.

Are You Ready for Our Shocking Predictions?

The fact is, the world has changed dramatically. The markets have changed. The wealth-building strategies we need to employ have changed (though their principals remain the same).

Top stocks for 2011 that used to be the quintessential "widows and orphans" companies can no longer be relied on for safety. Heck, if you need proof of that, look no further than American "staples" like GE and GM.

So, as all our Taipan Publishing Group editors eerily agree, the only solution for savvy investors is to take matters into their own hands. To be the captains of their own ships, so to speak.

You can't rely on anyone else to make financial decisions for you any longer - that's partly how this market mess came about to begin with! You can't rely on the mutual funds to make the right decisions for you. Your broker, like it or not, has an agenda. And as we've seen all too clearly, banks can fail.

And at times, you must be willing to suspend all disbelief.

We firmly believe that you must control your own financial destiny. And our collective editorial brain trust gives you excellent tools to learn how to do this - to teach you to steer your ship yourself.

Our mission statement here at Taipan is that you need to take control, to take back your own wealth. Don't be afraid to think outside the box and consider opportunities that would have seemed crazy to you three years ago. Diversify, diversify, diversify.

And we're here to guide you every step of the way.

Chaos and Crisis: Opportunities in a Global Cash War

Our entire think tank is gathering in Las Vegas this Sept. 23-25 to discuss what we really think is going on with the market. And I'll be the first to warn you: we don't all agree.

Some of us think we're seeing inflationary patterns... while some think this is clearly the mark of deflation. A few believe that we are indeed in a recovery... yet others continually cry foul on this rally and are awaiting the double-dip recession. Some agree that China is on the road to becoming the No. 1 global superpower incapable of falling... while others smell a bubble.

All of our editors, plus many special guests, will make a host of predictions at our annual Global Opportunities Summit. I can't guarantee we'll all be on the same page. I can't guarantee we'll all be right.

But I can guarantee that you'll hear some strong words and opinions. I can guarantee that our experts will provide you with thought-provoking scenarios that could very likely protect your entire portfolio, or score you an easy eye-popping gain... as long as you keep an open mind.

It was only a month ago that Martin Wolf led a "great debate" on how governments should react to the financial crisis. Of all the ideas to come out of financial crisis of '07, Wolf proposed one of the most remarkable. He illustrated it with the fable of the ant and the grasshopper. He saw two types of economies. There were those that produced and those that consumed. The trouble, according to Wolf, was that the two didn't compete at all. Instead, they lived in a kind of symbiotic parasitism. The grasshoppers lived off the labors of the ants. Not only did the grasshoppers make the things that the ants used, the ants took the grasshoppers' money and lent it back to them, so they could buy more. The grasshoppers were ruining themselves. But the ants were making a mistake too. They were building up capital, but what could they do with it? There was no point in expanding output capacity; arguably, they already produced too much. And what could they buy? The grasshoppers had nothing to sell.

That was not the worst of it. When the grasshoppers had spent too much, said Wolf, both bugs were trapped. If the grasshoppers in Spain and Greece were forced to spend less, the ants in Düsseldorf were condemned to sell less. Their economies were doomed to go down together, like galley slaves chained to a sinking ship.

In any case, it looked like the sort of thing the fixers could fix. Germany is all make. Greece is all take. The system was out of whack. Trade flows must balance out to zero, so Wolf et al concluded that the problem could be corrected on either side. Germany could stop working so hard and exporting so much stuff it didn't want. Or, Greece could stop spending so much money it didn't have. Since any slowdown in spending threatens the "recovery," it would be better for Germans to do more spending themselves. They should raise wages and encourage their own people to buy more Audis...more ouzo...and more pointy shoes with curled up toes. This was no time for austerity.

They misunderstood the problem. Imagine two men marooned on an island. They barely survive. One works hard, hunting, gathering, and planting. The other dances on the beach like Zorba, depending on the kindness of his companion for his daily rations. The problem is not the lack of balance. The problem is the slacker. You could redress the balance between them by getting the productive one to slack off too. But then, they'd both starve.

The euro was seen as part of the problem, too. It was either too low for Germany or too high for Greece, said analysts. In the good old days, Greece could have pulled a fast one, devaluing its currency to make its citizens poorer, and their labor and exports cheaper. But now, there is no cheap and easy solution.

Which set us to a-wondering about how the world possibly got to where it is. For the hundred years from the end of the Napoleonic Wars to the beginning of WWII, Europe was rarely happier, more prosperous...or more at peace. Yet during that time, money was even more inflexible than the euro. Governments did not commit premeditated murder of their own currencies. Instead, the value of paper money was protected by gold. People competed by working harder, saving more, and figuring out how to produce more with less - just as the Germans are doing now.

This week, the Merkel team followed up. "The lady's not for turning," Ms. Merkel might have said, taking a line from Margaret Thatcher's 1980 Brighton speech. With the pressure off its budget, the commentators thought the Germans might be tempted to ease up on their austerity program. Instead, the German government will continue to pursue cuts to military and social spending, she said. Success will not distract Germany from its austerity program. Whether failure will send it off the rails is a question to be answered later.

Maria does okay.

She has learned from her father not to borrow money. So when she bought a car - a spiffy Mini Cooper convertible - she wanted to pay cash. She went to cash out some of her stocks, but a broker talked her into leaving the top stocks in the portfolio and taking a cash advance against it.

This was great for the broker. He earned a fee from the loan. But it only made sense for Maria if her top stocks rose more than the loan charges. Not a good bet in this market. Besides, if she wanted to borrow money she would be better off borrowing from dear old dad.

"I probably should have stayed in LA...because I need the money. It's expensive to come over here. I mean, there's the airfare...but also the money I don't make."

"Don't worry about it," said Dad. "Most people are far too busy in general...and too busy earning a living to make any real money. They get caught up in it. Their incomes go up. So they increase their expenses. The more they earn, the more they have to earn. And it just goes on and on...with no time to really think...and no chance to do anything that takes a long time. Most people can't take a year off from work. Many can't take a week off. They can't afford it.

"But it's probably a good idea to take some time off. I've become very suspicious of busy-ness. You know, all those fellows who earned their MBAs or their Ph.Ds. in finance and business? They went to Wall Street and worked liked devils. Dashing to Cleveland to do a deal...rushing to London for a meeting...a cell phone in one hand...a Blackberry in the other...working until 1AM...feverishly churning paper.

"What good was it? Wall Street is supposed to allocating capital efficiently so that the free market economy can make progress. What they were really doing was creating a kind of Bubble Finance - trying to make as many deals as possible in order to earn fees. And all the deals involved adding debt to the system.

"And they were so busy doing it that they didn't bother to notice what was really going on. You should read some of the transcripts of testimony by the people running big Wall Street firms. Or just talk to some of the people doing the deals. They were going at it like demons. But they never stopped to reflect on what they were really doing or what good it was doing. So, when the crisis came, they didn't know what was hitting them. The dumbbells discovered that not only did they monger a lot of debt, the also bought it...and held it in their own vaults. Of course, Lehman didn't survive. The others only made it through by leaning on the taxpayers.

"The whole thing was comical and absurd..."

"Dad, are you getting off-topic here?" Maria interrupted.

"No, no... This is my point. Here were the best educated, smartest, highest-earning people in the country. And they couldn't see that they were on the edge of bankruptcy. Why not? Because they were too busy earning money!

"The average fellow does that too. He works so hard...and he spends so much money...that he can't see that he's always right on the edge of going bust. He has no margin. No cushion. He doesn't take the time to think through what he is doing and why.

"I work hard most of the year. From 8 in the morning to 8 at night, more or less. I've done that for the last 40 years. But when August comes around, I try to downshift. Instead of racing down the highway...I want to take a little back road and meander a bit...see where it leads.

"I might even stop for a picnic...or sit in a chair and read a book I wouldn't ordinarily read...or think about what I'm doing...about who I am and what I really want...about what is important and how to get it... "

"Dad, you are a big BS-er. You know perfectly well you never slow down. You come here and you work all day, just like at home. And you get mad when someone interrupts you. You're just painting shutters and fixing doors, rather than working in the office."

"Yeah...but I can think while I'm painting..."

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The old ways of investing don’t really work anymore.

Not indexing… not buy-and-hold… not value hunting… nothing. It’s clear by now that despite all the ups and downs in the market averages, this has been a lost decade for most investors.

But trading – especially when founded on scientific principle – can and does work very well in volatile times like these. You see, every trade we make is based on technical analysis, which is the scientific way of investing.

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That alone is reason enough to make investors want to add gold stocks to their portfolio... And they have.

In 2009, investors bought a total of 573 tonnes of gold through exchange-traded funds. That's 20.2 million ounces, and at the average price per ounce in 2009, that's an investment of $19.6 billion!

But with the strength of the dollar rising in the wake of the euro's near collapse, and the still-green shoots of recovery pushing up into the sun, individual investors might need more than one reason to keep or add gold stocks to their portfolios.

Indeed, here are five...

Reason #1: Soaring Global Debt

Do you know how much money the European Union decided to raise to bail out Greece? A cool $1 trillion. Add to that the SDR4.8 billion (SDR means "Special Drawing Rights") in outstanding purchases and loans from the IMF, and Greece is in a massive debt hole that is threatening to collapse the whole European Monetary Union... And that's just one country in the IMF's accounts.

Remember Iceland's breakdown? Its outstanding purchases and loans figure is 654.76% above its IMF quota.

In fact, the IMF's member countries are SDR1.3 billion in arrears as of May 31, 2010. That's the amount of money from IMF loans that are at least six months overdue. These countries are weighing down the global economy, and any economic fears will increase interest in best gold stocks as a safe haven.

Reason #2: Overextended Dollar

With the euro crumbling, investors are seeking the safety of the U.S. dollar. Against the euro, the dollar has climbed as much as 21.3% in the first half of 2010. But has the dollar really climbed in value?

No... Government debt continues to climb above $10 trillion. The Federal Reserve won't even print the true total amount of dollars and dollar promises (read T-bills, etc.) in circulation. Interest rates are still at near zero, and have been for more than a year and a half.

The American consumer still feels strapped and our jobs growth is hardly making a dent in unemployment.

That means the growth in the dollar's value is mainly due to the pain and suffering in Europe. That's nothing to hang your hat on, and it's certainly a reason to put best gold stocks to buy in your portfolio.

Reason #3: Stability and Growth

The fluctuations in gold's price means there is a strong inverse correlation with the dollar's value. That's what makes it such a great hedge against a falling dollar. When the dollar drops, gold prices climb, and vice versa. It's a very stable relationship.

This is because best gold stocks to buy is priced in dollars, so when value is eroded, it takes more dollars to buy the same amount of best gold stocks to buy for 2011.

But here's the thing... When the dollar falls sharply during tough economic times, investors flock to best gold stocks to buy. When demand for gold climbs, so does the price, since we're not making any more of it! That means you can see profits from investing in best gold stocks above and beyond the hedging protection it offers you and your portfolio.

Reason #4: Latent Inflation

Right now, with the global economy still a bit wobbly from the worldwide recession, the U.S. hasn't been hit with skyrocketing inflation -- like it should be, considering the amount of freshly minted dollars the Federal Reserve has flooded the market with in the past two years.

But with the stimulus programs (read, printing programs) and the absurdly low interest rates the Fed keeps holding, we're, in effect, creating a bit of an inflation "bubble."

Keep credit and borrowing cheap and hand out new dollars and you're going to have to pay the piper at some point. This latent inflation will send our economy into a tailspin once the rest of the world gains its footing. All the more reason to buy gold stocks in 2011.

Reason #5: "Blood in the Streets"

Everyone knows the "Blood in the Streets" theory... Even Warren Buffett says when people are panic-selling, that's the time to buy. His thinking is that you'll get some great deals, and he should know, eh? But Buffett is a long-term player. He thinks in decades, not months or seasons, or even weeks like some investors.

"Blood in the Streets" also means people are scared and not willing to put their money at risk. Instead of investing like Buffett, they sell, sell, sell, creating a self-fulfilling prophecy that sends markets sharply lower, which incidentally sends more people to the safety of gold stocks.

We've seen moments of panic in our markets, even after the recession was deemed over. The month of May was really turbulent, starting at 11,151 and finishing at 10,136. June saw the Dow drop briefly below 10,000 again. Gold during those times climbed back above $1,200 an ounce...

July and August saw the Dow stage a comeback, but never get back above its May highs. Gold? As of the beginning of August, it's still above $1,200 an ounce!

The Next Step

These five points should have convinced you to think of adding gold to your portfolio. The next step is looking at how to do just that. We at Taipan Publishing Group have compiled a free Special Report detailing some of the best gold investments for today's market uncertainty.

It's called, honestly enough, "The Best Gold Stocks to Buy Now."

Ben Bernanke certainly had his share of bad luck this week. The carefully planned actions of the Federal Reserve - calibrated just so to walk that fine line between too accommodative and not enough - were thrown into a cocked hat by a barrage of ugly data points from around the world.

China slowing. Britain slowing. New sovereign debt jitters from Ireland. Japan sinking back into the muck. Perhaps worst of all, a U.S. trade deficit that clearly shows the "recovery" spinning its wheels.

What will the Federal Reserve do now? Should Bernanke and Co. react swiftly to the latest thumbs-down by Wall Street, or would that look like pandering? Has the timetable for full-blown "QE2" - shorthand for quantitative easing II, though it sounds rather like the name of a cruise ship - been sped up? Only the shadow knows.

Behold the Hollow Men

Speaking of the Fed and their ilk, my colleague Adam Lass calls them "the gray men."

In a slight twist on that idea, I think of them as "the hollow men," in keeping with T.S. Eliot's 1925 poem. Others have certainly made the comparison before yours truly - but that is because it fits so well:

We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw. Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless
As wind in dry grass
Or rats' feet over broken glass
In our dry cellar
- "The Hollow Men," 1925

Quiet and meaningless whispers. Voices like wind in dry grass. Rats' feet on broken glass. Is this not an apt description of Washington from the perspective of the average American, the average small-business owner, for whom no help whatsoever has come?

Serving Their True Masters

William Greider is the author of Secrets of the Temple, one of the best books ever written on the Federal Reserve. He is also an active journalist.

One week ago - on Aug. 6, 2010 - Greider published a long piece in The Nation titled "The AIG Bailout Scandal." If you wish to read it, you can do so here. But if you are a long-time Taipan Daily reader, you don't have to read it, because Greider basically lays out the same allegations and conclusions we came to 16 months ago.

Via the findings of three government investigation panels - the Committee on Oversight and Reform, the Financial Crisis Inquiry Commission, and the Congressional Oversight Panel (COP) - Greider details, with a focus on the COP report specifically, a pattern of shady dealings and highly questionable intents Taipan Daily first clarified via "The AIG Connection - Far Worse Than You Think" back in April 2009.

The first paragraph of Greider's piece - late to the party though it is - is worth quoting:

The government's $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG's collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception. These financial dealings are monstrously complicated, but this account focuses on something mere mortals can understand - moral confusion in high places, and the failure of governing institutions to fulfill their obligations to the public.

Bingo. Whether or not one agrees that AIG is the hub of all deception, dirty dealings protruding from it like spokes, the truth of the matter is that the intent of the hollow men - their sense of "obligation to the public" - is nothing like conventional wisdom makes it out to be. Taipan Daily has been pounding that critical message home ever since the crisis began. It is good to see others picking up the thread.

A Century-Old Franchise

To wit, the hollow men are not here to serve you and me. They are not here for the good of the country, or the health of the financial system, or any other justification so sentimental and naïve. Their mission is singular - to serve their true masters. That's all.

When the creators of the Federal Reserve got together on Jekyll Island in the years leading up to 1913 - the year the Federal Reserve act was passed - they represented, by some estimates, a quarter of the world's wealth in just one room.

And while one can never know the deep-down personal influences of those men, it seems safe to say they were not motivated by pureness of heart.

In seeking to safeguard the financial workings of the U.S. economy, the plutocrat fathers of the Fed were likely as unsentimental in their aim as dairy farmers, hoping to secure a herd of cows for the productive value of the milk.

What grew out of Jekyll Island, then, was a sort of brilliant trick. Not only did the Federal Reserve insinuate itself into the very warp and woof of U.S. economic fabric, it did so in such a way that extraction became impossible over time.

And thus now we have to heed warnings of "systemic importance" when dealing with the too-big-to-fail financial institutions, because the warnings are more or less true. The Federal Reserve system was designed to aid and comfort the banks first and foremost. To ensure the permanent longevity of that arrangement, the major banks positioned themselves like a cancerous tumor embedded in the spine - too dangerous to cut out for fear of paralyzing the patient.

Walking Away

What can be done about the hollow men? Not a whole lot, unfortunately.

In addition to parasitic systemic importance, the whole edifice of self-dealing and deceit resides behind an opaque smoke screen of complexity (as William Greider notes). Many Americans struggle with the basic concept of balloon payments on a mortgage, let alone the mathematical hocus pocus used by Wall Street to cover up its tracks. And besides: Who can truly expect the public to keep watch, when they are too busy watching American Idol?

In another theme that has long run through these pages, your humble editor's solution is to focus on the small things, the personal things... to opt out of the system in as many ways as possible.

For yours truly that means no mortgage debt, no credit card debt and no auto loan debt. It means no financial accounts at major banking institutions, instead using independent brokerage houses, smaller local banks, and megabank alternatives like EverBank. It means a readiness to profit from systemic breakdown, via the shorting of exposed financial players and/or the purchase of silver and gold. And, in general, a habit of minimizing accidental patronage of the system to as great a degree as possible.

We may not be able to stop the hollow men. But we can recognize them for who and what they are, and we can walk away. And we can encourage others to do the same. Maybe with enough critical mass, fueled by crisis powerful enough to wake the man in the street from his slumber, there can one day be change.

Any company can increase its earnings for a while merely by cutting expenses. But eventually, a firm reaches a point where it can't cut costs further without damaging the underlying business. (Obviously, if you reach the point where you're selling off key infrastructure or laying off top people to boost short-term profits, you're hurting the company's long-term prospects.)

There are other important factors as well and I can illustrate a few of them by pointing to a near-perfect growth stock...

Want to See If a Company is Growing? Look to These Three Crucial Factors

In order to see robust bottom-line growth, you need to see substantial top-line growth. In other words, sales have to rise, too.

And Apple, Inc. (Nasdaq: AAPL) is doing just that.

~ Sales & Earnings: The company is selling boatloads of iPods, iMacs, iPhones and iPads. In many instances, it's been unable to keep up with demand. In the most recent quarter, sales jumped 49%. That enabled earnings to soar 90%.

~ Profit Margins: This is another important factor. If competitors can come in and easily underprice you, your business is vulnerable.

But Apple is well-protected with its iron-clad patents on the Mac operating system and many of the key features of its bestselling products. So it's no surprise that operating margins top 29%. Or that Apple is up 59% over the last 52 weeks, even after the recent market dip.

Over time, Apple has brought down the price of most of its products, but not because competitors were forcing them down. Management did it because they wanted to broaden the potential market for Apple's products. That's key.

~ Return-on-Equity: This important metric is calculated by dividing earnings per share by book value (or net assets) per share.

Why is this important? Because it tells you how efficiently management is deploying the firm's capital. Warren Buffett -- who puts a great deal of emphasis on ROE -- says anything above 17% is good. Apple's return on equity is twice that.

Happy Customers... Happy Shareholders

Apple has done plenty of other things right, too. It's a consistent innovator and is a world-class marketer. (Its products are so cool, customers find themselves lusting over things they don't even need.) And it's done a good job of keeping a lid on costs.

The end result? Earnings per share have boomed over the last decade. And while the broad market has gone nowhere, shares of Apple are up several-fold.

It's a classic story of a company that keeps its customers coming back because it makes them happy. And the resulting increase in earnings keeps shareholders delighted, too.

The title alone is worthy of mirth. It has a certain musical reminiscence to it: "Welcome Back My Friends to the Show That Never Ends," or perhaps "Welcome to the Machine."

"The devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes," Geithner begins. "The scars of the crisis are fresh, and every new economic report brings another wave of anxiety."

The opening two sentences are frank and on target. But before long, the piece quickly veers into cloud-cuckoo land. Having taken a perfunctory stab at credibility by first citing what is plain as the nose on our faces, Geithner then seeks to twist our minds and avert our eyes. It's really actually OK, we are supposed to conclude. Things are getting better.

The data points cited by the piece appear true enough, insomuch as an NYT fact-checker would not dispute them. But as some wag once said, "there are lies, damn lies, and statistics," and Timmy's rosy data points are designed to deceive.

To understand why the Geithner op-ed is a fine piece of Machiavellian craftsmanship, it's helpful to revisit Swordfish, a 2001 action flick starring John Travolta and Halle Berry. In the movie, Travolta plays Gabriel, an amoral criminal mastermind who answers to a higher calling.

Gabriel: Have you ever heard of Harry Houdini? Well he wasn't like today's magicians who are only interested in television ratings. He was an artist. He could make an elephant disappear in the middle of a theater filled with people, and do you know how he did that? Misdirection.

Stanley: What the [bleep] are you talking about?

Gabriel: Misdirection. What the eyes see and the ears hear, the mind believes.

Disappearing the Elephant

In "Welcome to the Recovery," Geithner goes for a little of that old Houdini magic.

Geithner is not merely trying to convince Americans that, despite what they see and hear and experience on a daily basis, things are actually getting better. No, his ambitions are much grander than that. He is trying to make an elephant disappear.

The elephant in this case is the blatantly rigged nature of the system, and the atrocities committed in the name of propping up and preserving that system at all costs. We are supposed to forget what happened with AIG. We are supposed to forget the Christmas Eve Coup. We are supposed to forget the hidden puppet masters dwelling in the shadows.

But most of all, we are supposed to forget that the U.S. financial system, with its powerful lobbying arm reaching deep into the bowels of Washington, is designed to be a well-funded oligarchy, first and foremost serving those at the very center.

It has been this way, more or less, since 1913. The rules have always favored the largest and best connected... as one would only expect, as these same players have the most clout in molding and shaping the rules.

What's new in this latest round of crisis, though, is the bright white dividing line of clarity drawn between "haves" and "have nots." When the system became so leveraged, so close to meltdown as to threaten total collapse, all the customary niceties were abandoned - and it became clearly obvious who was worth saving (i.e. "too big to fail" at all costs) and who was not.

Washington is ruled by an oligarchic financial power structure, with those at the top convincing all below that they are "indispensable" on top of everything else... and thus that their healing and well-being must come before all else, at the expense of every average American if need be. That is the elephant Geithner wants us not to see.

A False Prognosis

Geithner cites seven bullet points of "good news" - a mix of massaged data points and plausible conjecture - to argue that the recovery is here and on its way. He talks of booming exports... returning job growth... repaired balance sheets... banks on the mend, and so on.

The most pressing issues, of course, are artfully dodged. There is no talk of the following at all:

• Post-stimulus slowdown risk: The increasingly likely odds that the economic booster effects of stimulus programs were temporary, and are now wearing off.

• Corporate anorexia and long-term job loss: The reality that public companies continue to hit earnings targets and boost profits by slashing jobs and capital expenditure, preparing to work from a permanently reduced revenue base moving forward.

• Small business in a death spiral: Per the Naked Capitalism blog, "A Wells Fargo/Gallup survey of 604 small business owners conducted in early July showed a plunge in already negative readings to new lows. This gloomy outlook matters because small businesses were the biggest source in job creation in the last upturn..."

• Personal bankruptcies still on the rise: Per the WSJ, "More Americans filed for bankruptcy protection in July, reversing a trend of declining filings over the previous three months and highlighting the continuing financial struggles of many consumers..."

• Balance sheet unknowns: Banking analyst Meredith Whitney argues that bank balance sheets only appear to have improved via the use of accounting tricks, such as reduced set-aside provisions for future losses. Meanwhile, Brett Arends points out that, while corporate cash levels are at record highs, so too are corporate debt levels. The private sector is still heavily leveraged.

• Sovereign debt woes: The reality that a majority of Western world nations (plus Japan) have inflated their public balance sheets to dangerous size, with the threat of an Icelandic or Greek style crisis still hanging over Europe, the United States, Japan and others.

Those are just a few items on the plate that Geithner's "Don't worry, be happy" stance did not address. There are more concerns too - not least the fact that we are at the tail end of a 25-year leverage and debt supercycle (yet still living in denial of that reality), or the growing dangers of a housing market double dip, or the painful truth that the flood of stimulus thus far has flowed into the pockets of those who need it least, rather than those who need it most.

As for when a genuine "recovery" can be expected, your humble editor would wager it will not be until we give up the fantasy that two leveraged wrongs can make a right. We will not get out of debt by putting ourselves in more debt. We will not revive the free market and the private sector by grossly expanding the public sector. And we will not see a revival of local lending institutions and small businesses - still the backbone of the U.S. economy - until we abandon the belief that a cadre of financial behemoths at the top can bleed the country dry with no consequence. These fictions have not yet been disgorged.

How about you? Do you believe we are in economic recovery, as Geithner suggests? Or does it still have to get worse before it gets better? Are Geithner's improvement metrics fair, or is he trying to pull a Houdini and take our eyes off the elephant? If there is still harsh medicine to come, how harsh could it get?