From Dan Denning in St.Kilda:

-- Probably keep your mouth shut and lay low and try not to get yourself killed. That's what you should do if you find yourself confronted with a belligerent and powerful enemy who's bent on destroying you but is currently engaged in internal quarrelling and self destruction. See, we told you gold was smart.

--Gold futures closed up 1.10% in Tuesday New York trading to $1,382.30. The big driver is still the uncertainty about what will happen with Europe's ongoing, never ending, this-can-only-end-badly Sovereign debt crisis. But don't forget another important driver for gold and precious metals in general: demand!

-- "China's securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation," reports Marketwatch. With one-year bank deposits yielding 2.5% and the official inflation rate at 4.4%, you can see why a saver in China would want to get out of cash and into something like gold, stocks, or property.

--The trouble is that two of those three options listed above are currently getting smashed in China. China's Shanghai Composite Index fell 1.6% yesterday. You can see from the chart below that the index is back where it was in early October after a powerful move up. A hike in interest rates to (hopefully) contain inflation was expected over the weekend but didn't arrive.

--We've been catching up the last few days on the Shanghai and Hong Kong property markets. Of course there's a lot we don't know about the real estate market in China. For example, it might be normal to speculate on house prices in China, as it is here in Australia. There are cultural attitudes to certain asset classes that foreigners sometimes just don't understand (or see more clearly than locals).

--On the other hand, if you're a loud-mouthed American or just believe there's plenty of evidence that China is in the grip of a credit bubble, AND you have a $1.6 million Aussie dollars to put your money where your mouth is, you can sign up for Mark Hart's hedge fund

--By the way, if you don't have $1.6 million dollars, or don't feel like making a punt that large on China's fall, we'll keep you posted on what Murray's up to lately at

1. The euro is going to fail. Ireland, Spain, and Italy's sovereign debt cannot be financed.

>Shares of even the biggest and strongest of Europe's banks (Deutsche Bank) have begun to "roll-over."

2. More QE in Europe and America will make it much more difficult for businesses to invest across borders. That will result in massive trade problems and could easily cause a global famine. Most people don't realize how dependent the world has become on free trade for basics, like food. >Here's what agriculture prices have done since July when QE II began. Vastly higher ag prices are not bullish for financial markets or world order.

3. Housing in the US is going to collapse, again. The various games that have been played to prop up the housing market in the US have failed. Tax credits, etc. haven't worked...and they never had a chance. I have good contacts in this industry and it is completely bleak. With foreclosed properties making up 25%-50% of the inventories, housing prices will continue to fall 10%-15% a year - or more. There will be no new net demand for homes for a long time. Several major homebuilders will go bankrupt, including the largest, >Pulte.

4. Lots of major US corporations - see GE - have unsustainable debt loads. These companies will end up bankrupt and will fire at least 50% of their employees over the next three years.

5. Muni/State finance: You guys have seen all of the numbers. Probably half of the states and munis in the US are being run in a way that's completely unsustainable. As these cuts are made it will have a big impact on the economy. >See what happened to Cisco last quarter, all because of cutbacks at the local government level.

"The problems of 2008 haven't gone away. We've just borrowed a lot more money to make people think everything would be okay. As the veneer wears off, there's going to be a real panic; and this time it will be worse, because there's zero trust and confidence left in the government or the bankers...

"If I were in your shoes, I'd make sure every business unit I controlled was being run in a very prudent way, with a big cash flow buffer. I'd make sure they were ready to cut overhead by 50% in 30 days..."

Regards,

Bill Bonner,
for The Daily Reckoning Australia