Are We There Yet? Driving with No Spare A Muddle Through Economy Absent a Policy Mistake "... [this economic condition] has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things." - Friedrich August von Hayek, Nobel Speech 2010 1974

Last we talked on Agri-Food part of our discussion was drought in Russia and wetness in Canada. Mother Nature just does not understand that just in time inventory management requires the  weather to be properly scheduled. Or, perhaps humans should come to understand that just in time inventory is fine for electronic connectors, but does not work with wheat or corn or soybeans or any of the other Agri-Foods. While many things are made in factories, Agri-Foods are not.  The lost portion of the Russian wheat harvest will not be replaced till 2011.

“The collapse of the U.S. economy is a certainty - only the manner in which it will happen has yet to be determined. It is just a matter of time before the global derivatives bubble will produce the same result that has occurred to every other currency not backed by gold throughout history - those currencies, our ‘money’, will become worthless.”

We have a “Great Disconnect” on our hands. On Monday, the Federal Reserve Bank of Dallas released its latest manufacturing survey. This wasn’t old, stale data; the survey was conducted in mid-July. And the results were awful, with the headline index plunging to -21 from -4 a month earlier. That was the worst showing in a year.

Matt Badiali writes: By now, just about everyone in America has heard of the huge "unconventional" natural gas boom we've enjoyed in this country. Earlier this decade, people were worried the U.S. was running out of natural gas... a vital commodity we use to produce chemicals, heat our homes, and generate electricity. From 1980 to 1999, domestic natural gas reserves fell 18%. Production only grew 1% a year on average. In short, we were pumping out more than we were finding... for nearly two decades.

Crude oil futures continued to trade in a very narrow range, unable to cross the $79 a barrel threshold even though they ended 4.4% higher on the month. The benchmark West Texas Intermediate rallied with the stock market late Friday to finish the week at $78.95 a barrel, virtually unchanged from $78.98 a week ago, after dipping just below $77 a barrel earlier in the week. End-of-month trading might have accounted for some the late gains, analysts said.

In the last two essays we have emphasized the influence that the dollar and main stock indices might have on the precious metals and we have summarized our last essay by stating that we are likely to see a short-term bounce to the upside (…) perhaps very soon. Since this is what happened we would like to let you know where - in our opinion - gold is likely to go next.

William Patalon III writes: When the BP PLC (NYSE ADR: BP) CEO-replacement saga began to unfold earlier this week, and the Money Morning news team was working the story, I contacted Dr. Moors to ask him if he knew anything about anointed successor Robert Dudley. With that response, Dr. Moors underscored, yet again, why he's the ultimate energy-sector insider: He doesn't just know about Dudley - he actually knows him.

The standard justification for the Federal government's trillion-dollar-plus deficits for the next decade is this: "Without this stimulus, the economy will fall into another Great Depression." This is the Keynesian Party Line, all over the West. It is promoted by almost everyone. Even normally free market economists have gotten on board.

Yesterday we had a strong move down to support. We blew through 1099 and headed to the 50-day exponential moving average at 1093. It actually fell slightly below. We rallied as the day went on, but closed poorly. This allowed for another gap down today that was quite nasty, as we once again, tested the 50-day exponential moving average. This time we went a bit lower than yesterday as we traded to 1089. Getting too close for comfort when you think of how close we got to 1080, or the long term down trend line. It was do or die time for the market.