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 The Fed is unhappy with the inflation rate. And guess what? They’re blaming you. “Although inflation expectations seem much better anchored today than they were a few decades ago, they appear to remain imperfectly anchored,” Ben Bernanke glurbled yesterday in a speech before the National Bureau of Economic Research. “Undoubtedly, the state of inflation expectations greatly influences actual inflation and thus the central bank’s ability to achieve price stability.”
Let’s unpack that a little: “Inflation today isn’t as bad the ’70s, but it’s not perfect, either. Today, public fear of rising prices is causing inflation of the money supply. That makes it harder for me and my friends to control prices and the economy.”
We’ve already seen record-high fuel and food prices this year. But why should that bother anyone? For now, Bernanke and company are sticking to the “close your eyes and picture lower inflation” technique.
 As we predicted yesterday, currencies across the globe rallied after the speech. The euro, pound… even the yen… all took whacks at the dollar in overnight trading. The euro reached another record high, at $1.37. The pound pushed past its 26-year high, to $2.02. And the yen reached a one-month high of $.008.
 Moody's lowered its credit ratings on $5.2 billion of bonds backed by subprime mortgages yesterday. Standard & Poor's may do the same for $12 billion in securities.
This week and last, Moody’s has been taking heat for waiting too long to respond to the housing bust. They’ve now downgraded 399 bonds. S&P’s threat puts another 612 at risk. In their press release, S&P said they expect home values will decline 8% on average between 2006-2008.
“On the numbers,” reports Eric Fry of Rude Awakening, “the U.S. economy is slowing, the U.S. dollar is faltering, the housing market is limping, the mortgage market is withering and the leveraged world of credit-derivative exotica is imploding. The last of these worrisome items fascinates -- and worries -- us the most.” For extended coverage of this issue, please read today’s Rude Awakening.
 The Dow, S&P and Nasdaq all lost well over 1% in yesterday’s trading. Shares of investment banks Lehman Brothers (LEH), Bear Stearns (BSC) and Merrill Lynch (MER) fell more than 3.5%.
 Elsewhere in the global financial expanse, Asian markets are seeing some of their best performances in history. Check out these stats from the
Rim of Fire:
- In Mumbai, the BSE Sensex topped 15,000 for the first time
- In Tokyo, the Nikkei 225 notched a seven-year high
- Hong Kong’s market closed at a record for the fifth straight day
- Seoul has had four consecutive record-setting days
- In Sydney, the Aussie market marked its 34th record close this year.
 The Chinese government revised their 2006 economic growth numbers this morning. Rather than the previous 10.7% growth, they reported 11.1% for the year. They also reported a record high June trade surplus -- $26.9 billion.
The U.S. economy grew at 3.1% in 2006. And the most recent monthly numbers reveal a U.S. trade deficit over twice as big as China’s surplus -- $58.5 billion in April.
“Short term,” responds Chris Mayer, “we should expect nasty whirlpools and occasional rough seas. But over the long term, the global economic growth engine is in Asia, which is bullish for those markets and investors who can figure out who the winners and losers will be. That part of the world and the impact it has on global markets -- say for a barrel of oil or a head of cattle -- will only get bigger over time.”
We’ll be discussing these very issues LIVE at the Rim of Fire Investment Symposium, in Vancouver July 24-27, 2007. Don’t miss it.
For a sneak preview, check out this Webcast from distinguished Vancouver veteran Frank Holmes. It’s FREE and details the Asian resource juggernaut’s impact on commodities markets worldwide.
Take a look, and then register to hear Frank speak in person in Vancouver. We’ll see you there.
 Yesterday, the Chinese government executed its former food and drug chief. Zheng Xiaoyu gasped his last breaths only a little more than a month after his May conviction for accepting bribes to approve a controversial antibiotic that killed 10 Chinese citizens.
Let’s compare: In September of 2004, Merck withdrew a drug called Vioxx after a study revealed that Vioxx caused between 88,000-139,000 heart attacks, 30-40% of which were fatal. The drug made over $2.5 billion for the company. No one went to jail and Merck gave back less than half of its proceeds in civil litigations.
The AP estimates that China puts more people to death each year than all other countries in the world combined. Hmm… interesting times.
 If nuclear were to replace oil as our primary source of energy, say researchers from Oxford University, the “world” would have to build four nuclear power plants a month for the next 70 years.
Nuclear plants currently provide 16% of the world’s electricity. But to compete seriously, nuclear would need to power 33% of the world by 2075. That would mean 3,360 new plants over the next 70 years… about four a month.
“China and India plan to build 50 new plants each by 2010,” reports our Jonathan Kolber. The news is nothing if not bullish for uranium mines and stocks. But the Oxford researchers were highly skeptical that this rate of growth in nuclear plants is achievable, physically or politically. Why Iran Will Never Give up Their Nukes >>
 By a simple twist of fate, within hours of the Oxford release, the International Energy Agency predicted “a world of increasing [oil] market tightness beyond 2010” and a serious “supply crunch” by 2012.
The agency attributed this forecast to a 4.5% expected global economic growth rate over the next five years and an Asian and Middle Eastern market that will “create oil demand growth three times faster that that of OECD countries.”
The IEA went on to estimate that OPEC’s current surplus buffer of 3 million barrels a day will be cut in half by 2012, thanks largely to cost overruns, lack of expansion, project delays and generally shoddy leadership.
Brent crude rose to $76.34 in trading yesterday -- two bucks short of its all-time high. Light sweet crude continued its climb to $73.
 “I am an avid Agora Financial reader and have been for some time,” writes a reader. “Despite the fact that you are obviously learned and highly intelligent people with access to a lot of powerful facts, I always take what you say with a grain of salt.
“Why? Because your thesis is too difficult to swallow, and not simply because it's so bleak. You come across as arrogant reactionaries whose sole source of outrage is that you are not earning a high enough return on your savings accounts and are being forced to either work or risk your capital (i.e., compete) to get ahead. Your simplistic, nihilist argument that people are stupid and the world is going to hell in a handbasket doesn't hold water at all. In fact, some would argue that the world (including the United States) has never had it so good.
“Granted, the world is becoming competitive, increasingly so, and it does have its share of enormous problems (all of which, in my opinion, are physical, not monetary or political: things like energy, oil, food, water, the environment and so on). Getting gobs of money and keeping it across generations while engaging in pomp and circumstance and debating history and doing all those blue-blooded things is becoming harder to do, and I can imagine that annoys the hell out of you.
“But on the flip side, it's never been so easy for the average person to lead an autonomous, productive, educated, healthy and mobile life. Whether you call that progress or not depends entirely on your vantage point…”
We’re far from being annoyed or outraged. In fact, we’re rather entertained by it all. The Chinese say, “May you live in interesting times,” as a warning to their foes. We believe nothing if not the fact that we live in interesting times. And we want nothing more than to live “autonomous, productive, educated, healthy and mobile” lives ourselves… and to help our readers achieve the same.
Bleak? Reactionary? Hardly. More like there is no free lunch, and those who believe so are going to get what’s coming to them. In the meantime, enjoy the spectacle.
 “I am an admirer of all that you produce,” writes another, expressing an alternate point of view. “I can't even remember what I read and where I read it anymore. It all blurs into one big ‘Agora mind meld.’ But it does offer incredible clarity. And I must say that the future looks quite clear from atop Mount Agora.
“I submit to you respectfully that Financial Reckoning Day has come and gone and it was, in fact, Friday, June 15, 2007. That was the day that Merrill Lynch tried to unload $800 million in CDOs and the day that ‘someone’ talked them out of doing it. It was also the day that everyone and their brother had that ‘emperor has no clothes’ moment.
“The day that the infamous phrase ‘mark to market’ made its way into the media and struck fear in the hearts of everyone on Wall Street. On that day, the entire thing began to fall apart. But those who do not wish to recognize facts and who think they know better than the masses have fought around the clock to keep the inevitable from happening.
“Today, July 10, 2007, I believe that everything clicked into place and markets began to do as they should be doing. Gold is going up and beginning a breakout. The yen rose, the dollar fell. Stocks markets rattled only slightly, offering no glimpse of the down-5%-or-more day or days that lay ahead. And the country focused on the latest missing woman, found dead, and the latest pageant queen scandal. I wonder what Paris will do that is interesting today?
“Gentlemen, today I looked in my rearview mirror and saw clearly, with perfect 20/20 hindsight, that the Day of Reckoning has come and gone. Now the only question is how long can the chicken run around the barnyard after it has already had its head cut off?
“Thank you for all that you do every day to bring clarity to those who care enough to listen, read and think.”
Agora mind meld? That sounds painful.
Enjoy your day,
Addison Wiggin,
The 5 Min. Forecast
P.S. Only four days left ’til Steve Sarnoff’s next option recommendation: Click here to join in time time.
P.P.S. Don’t forget, Gunner's new Bulletin Board Elite will be launching this weekend. His first BB jumper is a "hot" geothermal play ripe for geyser-like growth... stay tuned.
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