This morning’s Commerce Department release of +2.7% places August retail sales well ahead of the 1.9% “expert” consensus.

Great. Now that they’ve “pulled forward” car sales for the next 12 months…what’s next? How about… Appliances!?

Later this fall, Uncle Sam will being doling out up to $200 a pop (in borrowed money) to anyone who wants to replace an old appliance. Yeah, that’ll keep retail and GDP stats humming along.

Wholesales prices rose last month twice as much as forecast…thanks largely to rising gasoline prices. The 1.7% jump in August followed a 0.9% decline in July.

“Core” PPI excluding food and energy rose a more modest 0.2%. But that was also double analysts’ expectations. Turns out a good amount of that was driven by higher prices for cars and trucks, too. Whaddya know… “Cash for Clunkers” gave automakers an excuse to cut back on factory-to-dealer incentives.

Dealers don’t experience a squeeze without passing the costs along to customers. Which should make tomorrow’s release of the consumer price index (CPI), well, interesting too. The consensus says a 0.3% increase. We’ll see what tomorrow brings.

Source: Cash for Clunky Appliances?

Years of debt and securitization finally caught up to the FIRE (finance-insurance-real estate) sector of the economy. The titans of finance refused to come clean about the real value of the ‘assets’ they sat on…and finally it came time to pay the piper.

Dan Amoss, whose recommendation of Lehman put options generated 462% gains earlier that summer, wrote in this space a year ago, “Think about how much better off Lehman Brothers would be if its management hadn’t put off the process of reporting losses, dumping impaired assets and raising new capital. Would its stock be 26 cents today? Probably not.”

So the heavy-hitters of the finance sector have surely learned their lessons and proceeded to mark down their “assets” to realistic levels over the last year, right?

You wish. Even mainstream economists like the Nobel laureate Joseph Stiglitz say we’re in a worse pickle now. “In the US and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz told Bloomberg over the weekend. “The problems are worse than they were in 2007 before the crisis. It’s an outrage.”

And how do ordinary people feel about the response their government leaders have made to the crisis? Americans are, as our friend Doug Casey would put it, ‘a bunch of whipped dogs.’ Rather, they’re supremely sanguine, compared to much of the rest of the world.

For all the honeymoon-is-over talk surrounding Obama, we’re struck by how much grumpier people seem to be elsewhere. Americans are as satisfied with the actions of Obama and Congress to the same extent Russians are satisfied with those of the Putinocracy.

We should note here that Russian GDP contracted at a breathtaking 10.9% last quarter, while consumer prices are rising at a better-than-10% clip.

Source: Have the Titans of Finance Learned Their Lesson?

“Investing in this market is like trying to take cheese out of a set mousetrap,” Chris Mayer begins today. “It’s very tempting to make a grab, but you are also fairly certain about what will happen if you do. The market’s 50% rise from its March lows is stunning. It’s like the cheese in the trap. But we also know that no market moves up like that for long. The kill bar is never far from such rallies.”

Check out Asia early this morning… you can almost hear that bar whipping through the air:

Today’s global stock sell-off really started on Friday, when the U.S. suffered its worst bank failure of 2009.Alabama-based Colonial Bank gasped its last breath late Friday. With roughly $25 billion in assets, it was the biggest bank failure since Washington Mutual back in September.

Like WaMu, the FDIC brokered most of Colonial’s burden onto another bank’s balance sheet. BB&T picked up the lion’s share. And just like the WaMu/JP Morgan deal, the FDIC greased the gears by including some kind of backstop provision. In this case, BB&T and the FDIC (read: your tax revenues) will enter a loss sharing agreement on $15 billion in shaky Colonial assets.

Colonial’s failure took a $2.8 billion chunk out of the FDIC’s deposit insurance fund. With just $13 billion left — at best — the fund is at its lowest level since 1993. Along with four other banks that failed over the weekend as well, the FDIC has closed 77 banks this year. One more and we’ve tripled last year’s count.
“The FDIC has been tardy in resolving banks and cleaning them up,” says Dan Amoss, “which will result in higher costs to the FDIC in the long run. Plus, with these ‘loss sharing’ deals (Colonial/BB&T), the FDIC is putting off the recognition of losses over a period of years, and its estimates of ultimate losses will likely be low, whether they’re ultimately absorbed by the deposit insurance fund or acquiring banks like BB&T.

“A perfect example is Integrity Bank in Georgia, which should have been shut down long before it was allowed to attract new deposits with high CD rates.

“Also, note to 5 readers: If your CD rates seem too good to be true, your bank may not be healthy, and you may have to deal with the hassle of not accessing your money while the bank is resolved.”

Dan has quite a knack for spotting bad banks. His Strategic Short Report readers bagged gains of 162% betting against Allied Capital, 220% on PNC Financial and the whopping 462% winner shorting Lehman Brothers. We just published his latest short-financial play… available to readers of The 5 for just $1.
Already anxious over Friday’s lousy U.S. consumer confidence number and Colonial’s failure, Chinese traders slammed the bid today on rumors that the Chinese government is going to tighten lending standards. No official word yet from Beijing, but rumor alone was enough to knock the Shanghai Composite down almost 6%. The Chinese benchmark is down 12% so far this month.
Thus, the foundation of the U.S. bear market rally is quickly eroding: The consumer is pulling back again, the banking crisis (as we noted Friday) is alive and well, and China — the world’s great hope for growth — is looking tired. Add all that up and the S&P 500 opened down almost 2% this morning.
“Investors might forget we’re in a bear market because investing this year has looked easy,” continues Chris Mayer. “Those who have missed out on the rally must be tearing their hair out. Their money burns a hole in their pockets.

“In fact, the evidence is that most investors have the attention span and patience of a field mouse. Here’s the average holding period for a stock on the New York Stock Exchange:

“What jumps out at you right away is that the average holding period is less than a year. That means that, on average, an ‘investor’ typically holds an NYSE stock for a matter of months. This is not investing, which is why I put the term in quotes. I don’t know what it is. Mindless gambling comes to mind.

“It’s no surprise that the last time we were down here was in the Roaring Twenties. We all know what that was the opening act for.

“This chart also speaks to a larger problem in the markets today — there are too few owners and too many renters. Just as in real estate, owners generally take better care of a property than renters. Why should it be different with companies?”

If you’re among the few long-haul investors left, you should team up with Chris. Check out his long-term “paycheck portfolio” here.
Commodities are under lots of pressure today, thanks mostly to Chinese investor anxiety. Oil’s down about $5 from Friday’s high, to $65 a barrel. Gold has fallen over $20 since Friday and goes for $932 an ounce as we write.
Thus, the dollar and U.S. Treasuries are today’s winners.The dollar index is up a full point, to 79.4. Bond demand has pushed the yield on a 10-year down 5 bps, to 3.5%.
Ben Bernanke is taking extra steps to save commercial real estate. The Fed announced this morning a three-six month extension of the Term Asset-Backed Securities Loan Facility (TALF).

The trillion-dollar program was set to expire at the end of the year. The Fed said today — conveniently, right before the market was about to open into a big sell-off — that it would bump the program back to June 31, 2010, for commercial mortgage-backed securities and to March 31, 2010, for other asset-backed paper. That should, in theory, encourage banks to securitize lots of new mortgage and consumer loans… the kinds they would avoid in a normally functioning free market. God bless the Fed!

The TALF has been in action since November 2008.
China’s sovereign wealth fund is preparing to buy up to $2 billion in U.S. mortgages. Having not felt quite enough pain from their Morgan Stanley and Blackstone investments, China Investment Corp. is rumored to be vying for a seat at the Public-Private Investment Plan — the yet-to-be-launched scheme the U.S. Treasury cooked up to get mortgage backed sectors off of U.S. bank balance sheets.
“We’re watching Far East telecoms,” Penny Stock Fortunes’ Greg Guenthner tells us. “Chinese Internet population is increasing at an astronomical rate, growing 42% last year alone, to nearly 300 million users, according to the China Internet Network Information Center. Now the government is setting its online ambitions toward the countryside, vowing to hook up every village with broadband lines by 2010.

“Still, the region’s penetration rate is only 17%, compared with 75% here in the U.S. The opportunities are boundless.

“Most of the time, backdoor plays offer the largest profits in growth industries like this one. Sometimes, however, a straightforward approach is your best chance at the quickest gains. This is one of those times.

“Take China Mobile, for instance. This telecom behemoth is the most obvious play in the region. In the last three years, the company doubled the number of subscribers and grew its bottom line 107%. That’s a rare feat for a $230 billion company.

“China Mobile’s growth is impressive, but it’s nothing compared with what a small-cap player can do in this field. There’s plenty of room to grow in the telecom industry of the Far East.

“That’s why we’ve been looking for under-the-radar Internet providers in Asia. And we just we found a beauty.”

Want the ticker? Subscribe to Penny Stock Fortunes here.
Japan has joined the ranks of recession-emerging nations. This morning, the Japanese government claimed the country’s GDP grew 3.7% in the second quarter. That puts an end to a five-quarter losing streak and the longest period of Japanese GDP contraction since World War II. As with Germany, France and Hong Kong last week, there’s little expectation for Japan to maintain this growth in the coming quarters.
Employees of the Chicago city government might be reading The 5 in their pajamas today. In a sign of the times, the city closed up shop to help close its budget gap. Running a skeleton crew will save ’em about $8 million a day
Last today, another strange reoccurring theme: Even the dead can’t escape the credit crisis.

An LA widow is auctioning her husband’s famous gravesite so she can afford the mortgage payments on their $1.6 million house.The deceased, Mr. Richard Poncher, is a relative unknown. But you might recognize the tenant immediately below his crypt:

At the end of the eBay auction — currently up to $4.5 million — Mrs. Poncher will rip her hubby out of his resting place and deed the crypt to the whoever the winner chooses. Before you fret for Mr. Poncher, we should add that he bought the place from Joe DiMaggio and insisted he be buried face down, in everlasting creepiness.

The new tenant will have to share Marilyn with Hugh Heffner, who has the crypt next to her reserved.
“Are you serious?” a reader asks. “How can this recession/depression possibly be over?” We enjoyed an overwhelming response to Friday’s issue, when we asked you to guess when the government/NBER would claim the recession is over.

“The causes of this man-made disaster have not been addressed and the same banksters-political class-financial oligarchy are still actively proceeding backward with their own hidden agendas. To quote Albert Einstein: “Never expect the people who caused a problem to solve it.” In other words, business as usual on the USS Titanic with its numerous enormous self-inflicted holes. Full speed ahead to the 1930s.”

The 5: We’re not suggesting it’s all sunshine from here on out. Here’s an example of someone who was closer to “pickin’ up what we were puttin’ down”:
“By my statistical analysis, the recession ended in May of this year; and that’s the good news,” he writes. “The bad news is that the DEPRESSION began in the following June. If anyone believes these smoke blowers at the gov’t and/or financial institutions (perhaps that’s redundant), they deserve what is upon us. It is not all sweetness and light. Bitterness and dark is the life we will lead until we restructure and begin the long pullback.”

The 5: Not a bad guess. Off the cuff, the average guess for when the government/NBER will officially declare an end to the recession is around November 2009. Most readers added that it won’t feel like it’s over for years to come. Lots of double-dip guesses too, which seems to make a lot of sense these days. And there were outliers, of course, which we’d be remiss not to share:
“2015,” a reader wrote. “No sooner — no way. Expect to defend yourself. It will get ugly.”
“It will officially end sometime in 2025-2028,” declared another.
“This depression should end technically around mid-2016 with the Dow under 1,000,” opined another. “So-called normalcy will not return until the mid-2020s. God only knows what this country will look like when it’s all over. Good luck to us all.”

Source: Global Sell-Off, Long Haul Investing, A Small Cap Opportunity, Commercial Real Estate and More!

The first public retirement pension scheme was created by Otto von Bismarck in 1880 Germany. Fifty years later, during the Great Depression, Franklin Roosevelt followed suit in the United States. As we’ve seen, the number of people expected to reach the retirement age of 65 was not considered to pose a threat to future funding. Life expectancy in 1935, in the United States, for example, was 76.9 for men. Workers relying on the plan for retirement would not receive much each month and were not expected to live long enough to drain the system.

When Social Security was founded, the typical U.S. worker at age 65 could expect to live another 11.9 years. But if today’s official projections are right, by the year 2040 the typical 65-year-old worker can expect to live at least another 19.2 years. If the normal retirement age had been indexed to longevity since 1935, today’s worker would be waiting until age 73 to receive full benefits and tomorrow’s workers even longer.

In a report called “Demographics and Capital Markets Returns,” Robert Arnott and Anne Casscells argue that the crisis is not in Social Security, but in demographics. “When an entire society ages,” suggest Arnott and Casscells, “…the thing that matters most is the ratio between the workers to retirees. Unfortunately, the aging of the baby boom generation, which is a significant bulge in population, will cause a dramatic increase in the ratio between workers to retirees, one that will put enormous strain on society and cause friction between generations.”

In the United States, as in other developed countries, the unfunded benefit liability for public pensions amounts to 100 percent to 250 percent of GDP. It is a “ hidden debt ” far greater than official public debt. Unlike in the private sector, these debts are not amortized as expenses over 30 to 40 years. 21 And it may be worth pointing out that under normal conditions economies do not run such crushing deficits. They only do so in crisis mode.

The annual cost of Social Security benefits represented 4.4 percent of GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, and then decline to about 5.8 percent of GDP by 2050 and remain at about that level.

A Bubble in Health Care

And to the retiring boomers’ other doubts and insecurities, we might add that U.S. health care costs are expected to rise by 7 percent of GDP over the next 40 years—a rate that is more than twice as fast as other developing nations. The “old old,”—those aged 80 and over—are predicted to rise sharply through 2050 and will dramatically increase long – term care costs as well as disability, dependence, and health care expenses.

In fact, by official projections, in 2030, the U.S. government will be spending more on nursing homes than it spends on Social Security today. “Although people justifiably worry about Social Security,” says Victor Fuchs, an economist who studies the health care industry, “paying for old folks’ health care is the real 800-pound gorilla facing the U.S. economy.” 23 Adding projections for Medicare and Medicaid ’s expenditures to those of Social Security could raise the total cost to more than 50 percent of payroll taxes.

The fiscal kickers of health cost inflation and political demand for more long-term care benefits threaten to raise public spending dramatically in the United States. Between 2005 and the fall of 2008, we spent two and a half years chronicling the efforts of David Walker, the former comptroller general of the United States, and Bob Bixby, executive director of the Concord Coalition, to reign in reform and shore up the Social Security and Medicare systems. The project yielded a feature length documentary film, which earned us a trip to the Sundance Film Festival in January of 2008 and another to the Critic’s Choice Awards in Los Angeles a year later. We published a best-selling companion book of the same title in late 2008. You’re encouraged to delve into the numbers we presented in the film and book. They’re truly mindboggling. But in many ways the project was dated the moment we released it to the public.

The credit crisis that reached a fever pitch developed in 2008 pushed the date of insolvency of these programs ever closer. On May 13, 2009, the Medicare Trustees warned that the fund they tap to pay for beneficiaries’ hospital care will be insolvent by 2017—two years earlier than trustees had predicted the year before. The program has been paying out more than it collects in taxes and interest since last year, in part due to a recession well underway. 25 Medicare would have to deposit $ 13.4 trillion—$ 1 trillion higher than last year’s estimate—into an interest-earning account today in order for the hospital fund to pay its scheduled benefits over the next 75 years. The program’s total unfunded obligation, which includes doctor and prescription drug benefits, is $37.8 trillion. The trustees estimated that in coming years, Medicare spending will rise faster than workers’earnings or the economy as a whole.

Trustees say that while the financial standing of Social Security decreased more sharply than Medicare last year, the health program remains at greater risk of insolvency. The financial difficulties facing Social Security and Medicare pose serious challenges, the report concluded.

For Social Security, the reform options are relatively well understood but the choices are difficult. Medicare is a bigger challenge. Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained. But despite the difficulties—indeed, because of the difficulties—it is essential that action be taken soon, particularly to control health care costs.

After the revised Social Security and Medicare announcement the world began to wonder: Can the U.S. hold onto its AAA credit rating?

“The U.S. government has had a triple-A credit rating since 1917,” David Walker, now president and CEO of the Peterson G. Peterson Foundation, commented in the Financial Time s following the release of the Trustees report, “ but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

“First, while comprehensive health care reform is needed, it must not further harm our nation ’ s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

“Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.”

Of course, we must note that the whole credit rating biz is…well…corrupt. The agencies that are responsible for dishing out sovereign credit ratings (S & P, Fitch, and Moody’s) are the same ones that left us all out to dry in 2007. (Of course, mortgage – backed securities get a AAA…housing prices never fall!) Rest assured, if Wall Street can buy its way into AAA, Uncle Sam surely can, too.

But even Moody’s is starting to hedge their bets. They’ve since created three subdivisions within their AAA rating: resistant, resilient, and vulnerable…a corporate way of saying the good, the bad, and the ugly. While the United States isn’t in the worst of the bunch, it’s certainly not the best.

Regards,
Bill Bonner and Addison Wiggin

Source: Excerpt from ‘The Hard Math of Demography’

We begin a new week pondering the question that bedevils the conscientious market observer every day.Inflation? Deflation? Or as Agora founder Bill Bonner is wont to suggest, both?

“Inflation – rising prices, or a drop in the purchasing power of the dollar – will soon rise to the very top of economic concerns,” writes Chris Mayer. “I can’t understand why there are pundits who insist we can’t have inflation while the economy is weak. There are plenty of examples of weak economies with high inflation. After all, I don’t think they are hitting on all cylinders in Zimbabwe, where inflation is thousands of percent.”

Look at food prices, Chris says. “Soybean prices hit a nine-month high of $12.50 a bushel. The Department of Agriculture said that inventories would drop to only 110 million bushels – the lowest level since 1976-77, when inventories hit 103 million bushels. There were about 2 billion fewer mouths on the planet then. At today’s 32-year low, we can eat through that stockpile in about two weeks. Not a lot room for error; hence, the nine-month high in prices.

“We have a similar tight market in corn. In corn, we’re down to about a four-week supply, the lowest in six years. Corn has rallied also. In fact, the prices of a variety of grains are now at levels not seen since the last food crisis:”

“During the last food crisis, rice traded for $1,000 a ton and there were riots in different parts of the world. The financial crisis took the headlines away from the unfolding food crisis, but now we are looking at act II.”

To capitalize, Chris has some little-known agriculture plays in Mayer’s Special Situations – still available for a one-month trial for $1.

Neither are gasoline prices waiting for the deflation trend to go away. They’ve jumped an average 17 cents a gallon over the last two weeks. The Lundberg Survey puts the national average for self-serve regular at $2.66. San Franciscans are paying the most – $2.99 – while folks in Tucson, Ariz., shell out a comparatively paltry $2.41.

According to conventional wisdom, the numbers will be up because of rising energy prices, but “core” inflation for those of us who don’t consume food or energy will be mild. Forgive us for wondering if we’ve entered a time warp and it’s June 2008, instead of June 2009.

On the other hand… we’re looking still enjoying some deflationary crosscurrents. “Over the coming months,” says Dan Amoss, “as the Fed hints at restraint, we’re probably in for another bout of the ‘deflation trade,’ in which demand for Treasuries increases and most sectors of the stock market reverse their recent gains.”

The Fed, for the moment, is making hawkish noises, but it won’t last. “As the stock market falls and the economy weakens, we should expect the Fed to step on the accelerator again.”

“I find it useful to think about the Fed’s role in such terms; as fear of inflation grows, the Fed will tap the brakes on its monetary debasement, and as fear of deflation grows, it will push the accelerator to the floor, if need be. The endgame under this tragic scenario is the eventual destruction of confidence in paper money, rapidly rising import prices for U.S. consumers and lower standards of living.”

As far as markets are concerned today, it’s deflation, indeed.

Gold is down to a three-week low of $933. In large part, that’s a function of the dollar strengthening today. And that’s a function of comments from Russia’s finance minister over the weekend. At a summit of G-8 finance ministers in Italy, he said there’s “no alternative” to the dollar as the world’s reserve currency, and that right now the dollar’s in “good shape.”

With that, the dollar index has shot up to nearly 1%, to 80.9. The euro is down nearly 1%, to $1.38; the pound and yen have taken lesser hits.

“It sounds like, looks like and smells like a coordinated effort by those that have the most to lose should the dollar continue on its downward path of the last three months to put a lid on their losses,” writes Chuck Butler, his five senses as keen as ever.

“Makes sense… But you have to wonder about what they are really thinking and doing… I’m talking about China, Russia and Japan, who have ALL stated in the past weeks that ‘The dollar is fine, and there’s no substitute reserve currency’… These statements all give dollar bulls a boost, and tell them that these countries are not going to back away from dollars and dollar-denominated assets.”

“Now… there’s a BRIC meeting coming up soon… Brazil, Russia, India and China… And while the finance ministers of these countries are at the meeting, I doubt seriously that they will hold the same amount of ‘love’ for the dollar… But that sentiment will be kept to themselves, as they don’t want to send the dollar spiraling downward.”

“These BRIC nations had it all going for them until July of last year. They were sent spiraling downward like most assets until March of this year. I would have to think that the finance ministers of these countries would be interested in knowing how they can avoid another downward spiral caused by dollar buying… And… this… would be the key, folks… I don’t know what it would be, but if they did something like a currency swap/foreign exchange line between each other for trade, that would be colossal! Which is bigger than HUGE!”

The dollar strength has sparked a wave of deflation in commodities, too. Commodity indexes are down 2% today. Even oil is down $1.55 a barrel, to $70.49, traders unfazed by what sure looks like a stolen election in OPEC stalwart Iran, with the prospect of a power struggle there that could last weeks or months.

The tumble in commodities has cascaded into stocks. The Dow opened down more than 200. Every one of the 30 Dow stocks is down as we write.

China’s economic planners hope to pluck another strategic acquisition from Byron King’s Energy & Scarcity Investor portfolio. The state oil company Sinopec is bidding for a Geneva-based oil producer with a prime holding in Iraq’s Kurdish region.

The news comes about six weeks after the Chinese bid for another Byron pick – an Australian-based producer of rare-earth elements used in everything from flat-screen TVs to hybrid car batteries.

Byron recommended the oil stock last November when it sat below $15. It opened this morning over $45. A triple in seven months.

And he still has his eye on a basket of small gold stocks with similar potential. Officially, we have 356 copies of his special report, Set for Life: Eight Keys to Getting “Miserable Rich” With Gold remaining. But that was as of a week ago Friday, and we’ve sent roughly 100 copies out the door since then. You can get your own here.

An emendation to Friday’s edition: Household debt in the first quarter fell to $13.8 trillion, according to the Fed’s Flow of Funds report. Our thanks to a sharp-eyed reader for bringing the discrepancy to our attention.

While we’re on the subject, we’ll note that bloggers who’ve dug deep into the Fed report have reached a disturbing conclusion: Household debt is contracting, but the value of household assets is contracting much faster.

Still, don’t dismiss those falling household debt numbers out of hand, advises The Richebacher Letter’s Rob Parenteau. “Looking at the unique aspects of this recession, we find the sharp reversal of household financial balances from a deep deficit position to a net saving position quite important,” he writes.

“Households are reducing debt loads, in part with higher saving out of income flows, and this has implications for prospective bank loan volumes and sales revenue growth at consumer discretionary firms. Larger fiscal deficits are supporting the ability of households to net save, yet the shortening of maturity of Treasury debt issued, as well as the reaction of investors to a heavy calendar of issuance this year and beyond, is complicating matters. In addition, the shift toward inflation hedges like oil is draining income from households to foreign producers.”

Thus, “We can think of two sectors that have led the U.S. equity market charge – banks and consumer discretionary stocks – that can be questioned if we are correct that household deleveraging matters.”

Our friend and blogger Barry Ritholtz has been running the numbers on the General Motors bailout. How likely is it the Treasury will earn back its “investment”?

“GM has received $50.7 billion in taxpayer money,” Barry writes. When Government Motors comes out of bankruptcy, Uncle Sam will own 60% of it.”

“At its all-time high, GM’s market cap was $56 billion, which slid down to ~$7.3 billion prior to Chapter 11.”

“For the taxpayer to just break even on their investment , the New GM would have to have to reach a market capitalization of $84 billion – almost 150% of its all-time peak. That will be tough, even with the new GM’s better capital structure, employee contracts and much less debt . . .”

Barry is among the new faces you can see at this year’s Agora Financial Investment Symposium in Vancouver, along with familiar ones like Bill Bonner, Doug Casey and Marc Faber. Opening day is just five weeks away and slots are filling fast. Secure your access here.

Sign of the times: Name the best-selling car in the United States. Nope, not the Toyota Camry, although that’s a good guess. No, in these recessionary times the crown goes to…

No bailout money was used in the production of this automobile.

Yes, it’s the Little Tikes Cozy Coupe, a venerable model introduced in 1979 – earning itself a permanent spot recently at the Crawford Auto-Aviation Museum in Cleveland.

With an MSRP of around $60, the pedal-powered single-seater sold more than 457,000 units last year – more than any model of the gasoline-powered variety. It’s American-made in Hudson, Ohio, and free of the taint of bailout money or White House-engineered bankruptcy proceedings that hosed secured creditors.

As long as we have inflation on the brain today, a reader writes, “It seems there is an idiot academic at Harvard (only one?) whom Bernanke and Geithner have apparently been studying under, who says inflation is good because it induces people to spend their money before it loses value, rather than save for the future, and that creates jobs and prosperity. Yeah, just like in Zimbabwe.”

The 5: You could be referring to Ken Rogoff, the former chief economist at the International Monetary Fund, and Greg Mankiw, an adviser to Bush 43. Both of them, indeed, teach at Harvard and both of them went on record recently saying a 6% CPI would be just dandy “for at least a couple of years,” in Rogoff’s words.

We’ll just leave our remarks at that, lest our blood pressure rise to unsafe levels.

Source: Food Inflation Returns, Watching the Fed, Dollar Bulls Rampage, Bestselling “Car” and More!

Brazil announced over the weekend it had conducted $3.2 billion in business with China during April — a 12-fold increase in Sino-Brazilian trade from 2001. April also marks the second consecutive month that the U.S. has ranked No. 2.

What’s the trade? Iron ore. Brazilian officials say the Chinese have been buying the stuff hand over fist since the start of 2009.

As one consequence, Brazil’s stock market, the Bovespa Index, is outpacing the American equity rebound. Brazil’s version of the Dow has recouped the majority of its crisis losses. Check it out:

Brazil and China are just two areas of rich investment opportunity we’ll be focusing on with the new BRIC report we conceived with our Indian partners last week in London. Specific details on the report are forthcoming.

“The Brazilians are gearing up for the first battle of the next war,” says Byron King. “They intend to survive as a prosperous, industrialized country in the 21st century, despite intense future competition across the world for energy fuels and other natural resources.

“Down in Brazil, they’re in something like national rapture at the prospect of drilling up the deep pre-salt hydrocarbon plays in the offshore basins. The estimates are that the deep basins off Brazil hold between 20-100 billion barrels of oil. Maybe more.

“The entire nation of Brazil, apparently, revels in the prospect of investing over $120 billion in offshore development in just the next eight years. They have a plan. It’s their moonshot. The Brazilians believe that the offshore environment will bring their industries firmly into the modern era. Brazil wants to be a world power in the 21st century. And the oil? Well, of course they have plans for that oil.

“Petrobras has plans to emplace HUNDREDS of subsea systems on the deep ocean bottom to bring that oil into production. The Brazilians will lay thousands of miles of underwater pipeline, with all the associated ship support and other equipment that entails.

“The Brazilians are not living in the frozen past. They’re not hostage to paralyzing myths. The Brazilians envision a future for their nation, and they’re acting on it. They see hundreds of deep-water oil wells pulling petroleum out of the crust from many miles down and piping it ashore to their refineries and industries. Indeed, Brazil plans to win that first battle of the next war. And it’s cutting the steel with which to do it.”

Source: China Takes Another #1 Title From the U.S.

Markets make opinions… even of Federal Reserve chairmen:

The Throwback Bernanke: Made W/Real Cane Sugar

“I think we are in much better shape than we were in September and October,” Mr. Bernanke testified yesterday, often speaking in a manner that, gulp, even a congressman could understand. That the S&P 500 had just inched positive for the year provided ample cover for the chairman’s tepid confidence.

“The pace of contraction may be slowing,” he added, riffing on the “glimmers of hope” theme offered by the Obama White House 3 weeks ago. “We continue to expect economic activity to bottom out, then to turn up later this year.”

And inflation? The chairman says he’s on it: “I just want to assure the American people that we are very focused, like a laser beam . . . on this issue of the exit and of making sure that we have price stability in the medium term… we understand the necessity of winding this down in an orderly way at the appropriate moment so that we will not have inflation problems on the other side.

“Our forecast is still for inflation to remain quite contained for the next couple of years,” he assured Congress. There’s really no need to worry… until it becomes a crisis (which it likely will, considering his forecasting history).

The Dow, responding in kind, opened up 1% this morning. Following minor losses yesterday, the market turned positive after the ADP jobs report hit the wire this morning. More on jobs in a moment…

But first, let us remind you, history shows this rally still has room to run:

The current rally is smaller — in order of magnitude and duration — than the average Great Depression rebound. Should history rhyme, we still have another 5% to the upside and more than 20 days to go.

Here’s the “money” lesson: Despite five rallies from 1929-1932 that exceeded 15% — including the doozy that soared almost 48% — the Dow fell from 300 to 60 over the same period. That’s an 80% crash.

Caveat emptor.

“875 is the number to watch on the S&P 500,” notes Wayne Burritt, architect of Easy Money Options “Because the market reversed course to the downside Feb. 9 and at that level (875) that peak is called — in technical parlance — a ‘resistance’ level.

“The market also failed to penetrate this resistance level just a few trading days earlier, on Jan. 28. All told, that means 875 is a pretty tough point for the market to get above. That’s why the market’s most recent action is more significant than most investors and traders are thinking: It smashed above key resistance at 875 like a walk in the park. No doubt about it, that shows uncommon technical upside strength.

“Here’s the best part: When the market breaks through resistance — especially after failing to do so in previous attempts — that resistance level has an excellent chance of becoming a stopping point when the market decides to turn down again.

“In other words, strong resistance — once defeated — becomes solid support for future price action. So when the market pulls back — and it surely will — it’s very likely to not fall too much below 875.”

And if the S&P 500 fails to find support at 875? All bets are off. If you’re looking to trade the swings, be sure to check out Wayne’s recommendations… here.

Whatever happens in the stock market, the economy has a lot of wreckage to sort through yet. For example, a study released today from Zillow.com reveals 21% of American homeowners owe more than their homes are worth.

Incredible, eh? One out of five homeowners is “underwater.” That’s 21 million people losing sleep at night wondering if they’re going to make it through this market.

“A combination of falling prices and low down payments has left many borrowers underwater,” said Stan Humphries, a Zillow VP. He noted that some markets in Nevada and California have “more than half of all homes in negative equity.”

Las Vegas takes the prize — a stunning 67.2%.

And manufacturing is still a mess. The economy will contract for all of 2009, forecasts the ISM today, parrying Bernanke’s late-year recovery.

The thrust? The semiannual purchasing managers outlook predicts a 14% drop in revenue for the manufacturing sector. And 5% for service businesses. Compared with the most recent survey, that’s a disaster. In December, managers expected a 1% fall in 2009 revenues.

Both sectors can expect employment to drop for the rest of the year.

Indeed, the U.S. private sector lost 491,000 jobs in April, the payroll manager ADP reports today. Since the Street was braced for a 645,000… that’s not bad. Compared to March’s 708,000 loss, half a million almost feels encouraging.

Employment for people who actually “make things” things doesn’t look so good. Manufacturing dropped 159,000 jobs — the 38th consecutive month of net losses. Construction shed 95,000, a net loss for the 27th straight month.

The Labor Dept. is expected to report up to 630,000 job losses in April on Friday, with official unemployment rising to 8.9%.

Bank of America is hogging the spotlight again. An unnamed exec there told the press that BoA has essentially failed the government’s “stress test.” Bank of America, apparently, needs another $34 billion in capital to stay afloat.

Naturally, shares of BOA opened up almost 10% this morning.

And if you thought this stress test business wasn’t gaudy enough, perhaps the “debt test” will do it for you.

Any bank wishing to pay back TARP loans money will likely have to undergo a “debt test,” the Treasury Dept. leaked today. Essentially, a bank will have to prove that it can find a market for its bonds without an FDIC backstop, one of the benefits of being under TARP protection.

Heh. The moment they put their hand out… willfully or not… these banks were doomed. No bank will be able to simply “give the money back”… are you kidding? Ha! There will be tests, favors, takeovers, back-scratching, bribes and at least one new scandal. Wonderfully entertaining fodder for The 5… not such great news for the credit markets.

The dollar continues to dwindle today. After a brief rally late yesterday, the dollar index is back below 84 this morning, thanks mostly to puffery in congressional testimony.

Still, right now, “the Aussie is leading the way,” notes our currency man Bill Jenkins. Indeed, the down under currency is up about 15% from March lows — a 10-cent jump against the greenback, to 74 cents.

“Just yesterday, we locked up 76% profits (and climbing) on the back of the Australian dollar. I’ve been pitching this idea for weeks, which gave all our readers plenty of time to get on board. As major currencies devalue themselves, the only ones that will have any value are the currencies of countries that efficiently produce useable, and, hence valuable, commodities.

“Money as we know it in the major currencies will become worth less, and the only currencies to increase in value will be those that are holding valuable goods! Unfortunately for most U.S. citizens, the U.S. dollar will no longer be considered a valuable commodity.

“Watch the appreciation of the commodity dollars, or ComDolls, with the weakening of the U.S. dollar. But don’t wait too long for your chance to profit!”

Gold is holding steady just below yesterday’s high. The spot price rings in around $908 as we write.

After a hefty rally yesterday, oil is pushing even higher today. Light sweet crude is up another buck, to $55 and change — a new new high for 2009. These days, as stocks go, so does the black goo.

“The fact that China is going to have a lot of new cars on the road over the next decade probably does not surprise you,” notes our value maestro Chris Mayer. “China has about 35 million cars on the road today. McKinsey Global Institute estimates that China will have 120 million cars by 2020.

“What may surprise you is that China recently adopted fuel-efficiency standards for vehicles that are even stricter than in the U.S. currently. And what may surprise you even more is that methanol is the main alternative fuel. Think of it as the Chinese ethanol.

“Methanol is a clear liquid alcohol made mostly from natural gas, though China makes methanol using coal. China produces and uses more ethanol than anybody else. The main use is to blend methanol in gasoline. Already, taxi and bus fleets in China run on high-methanol blends. And retail pumps also sell low-methanol blends, similar to the way U.S. gasoline stations have low-ethanol blends.

“Even though China makes a lot of methanol and is adding more capacity, it still imports methanol. As you can see from the nearby chart, Chinese imports have climbed recently.

“It is good to sell what the Chinese need. And their capacity is on the high-cost side of the spectrum. Prices for methanol in China are the highest in the world, at $240-250 a ton. In the latest issue of Capital & Crisis, I recommended readers buy the world’s largest producer of methanol, which also happens to be the low-cost producer.”

Not a subscriber? C’mon… this pick alone is worth the price of admission. Get details, here.

“So one of your readers is just fine with China controlling the world’s rare earth metals as opposed to our ‘cowboys,’” writes a reader, clearly peeved with yesterday’s inbox. “Said reader must be a little short on the last 40 or so years of Chinese history. Does the Cultural Revolution circa 1969 or Tiananmen Square 1989 ring a bell?

“No?

“Freedom of the press is not very big over there, so maybe you did not notice it, but they have no problem killing thousands to millions of their own citizens as they see fit. I’m sure Americans are not even that high on their list.”

“Addison,” writes another, “in my lifetime, the Chinese have conquered five sovereign nations and destroyed their individual and democratic rights. The Chinese are building their military up about as fast as it’s possible to build a military. And they’ve been doing it in part through industrial espionage using the computer and Internet technologies that Americans invented — so I have to take issue with the notion that all we’re good at is making bombs.

“Who believes that stuff?

“I’m with you on Bush, but the Obama presidency is making me downright nostalgic. In an imperfect world, you have to recognize and choose the lesser of evils. The anti-war crowd doesn’t seem capable of that sort of choice, so they put us in the same category as China — which has killed at least 30 million of its own people in my lifetime, while supporting the North Korean slave state and destroying Tibet, Mongolia, etc. That’s a view that is offensive to the vast majority of Americans and, I would bet, the Agora readership.”

“To your reader,” writes the last, “who detests the ‘delusional, slobbering cowboys in our military,’ perhaps he/she should consider going and living in a country such as China or Iran that doesn’t have those big bad bombs he’s so concerned about. If he/she had a brain in his/her head, he/she would realize that it is EXACTLY those big bad bombs and weapons that have kept the wolf away from our door — at least so far. Pinheads!”

The 5: Perhaps, you’re right. Unfortunately, the damage the Bush administration did — while paying lip service to free markets and liberty — breeds this kind of skepticism. I suppose I should be less flippant about it…

Source: Bernanke & Inflation, Why the Rally Might Continue, A China Play and More!

Arriba! Cinco de Mayo heralds big news for the S&P 500 this morning:

After a manic 36% bounce from its March lows, the S&P 500 has turned positive for the year. It’s now sitting on a whopping 0.4% gain, thank you very much.

But before you down the Cuervo Gold and shimmy onto the parquet for a hat dance… consider this:
The resurgence in S&P 500 is being driven by only three sectors: Consumer discretionary, materials and tech. See for yourself.

It’s hard to believe in “bull market” when two-thirds of the players are in the red.

We’re taking a closer look at tech, but for the time being — as if you need another reason to turn off CNBC — health care, utilities and consumer staples, the classic refuges for mainstream money managers, aren’t such good choices during this sucker’s rally.
“Buffett thinks his utilities and insurance businesses will do ‘quite well’ despite the recession,” says Chris Mayer, recapping Berkshire Hathaway’s annual shareholder meeting.

“Berkshire has its fingers in many different businesses, so Buffett has an eye into many parts of the economy. Buffett was mostly gloomy. Aside from utilities and insurance, he saw weakness in service and manufacturing and his other lines.

“Also interesting was a comment that he was looking more in the U.S. now than overseas. Last year, Buffett seemed to be devoting more energy abroad — I recall a trip to Germany, for instance. Now Buffett seems to find the U.S. situation more interesting.

“One other note: Buffett may not see much in manufacturing, but I’d say it is a wide spectrum. In Capital & Crisis, for instance, we own a few manufacturers in key areas of water, infrastructure and energy. They’ve turned in great results. But Buffett doesn’t see these, as they are too small for his radar screen. Too bad for him. Big advantage for us.”

In fact, Chris booked a 117% gain on just such a stock yesterday, in less than five months. Special Situations readers could have taken another 30% yesterday too, if they were following Chris’ advice. How did you do? If you’re not privy, become so here.
Stocks soared again yesterday, thanks mostly to another batch of “less awful” data. Traders started to rush in after construction spending and pending home sales data hit the tape at 10 o’clock. Both were way better than expected: Construction spending rose 0.3%, after a 1% drop in February, and pending home sales rose for the second straight month.

Of course, historically speaking, both measures are still in the dumps. But better to buy first and ask questions later… major indexes jumped 2.5-3%.
Markets are more timid today. The Dow is down about 20 points as we write — we suspect profit taking. And…
“Right now, the credit markets are broadcasting the following warning,” says Dan Amoss. “The equity of overleveraged REITs is at risk of elimination or permanent impairment. Yet the stocks of real estate investment trusts (REITs), which are popular among income-oriented retail investors, are still trading at high enough levels that discount a ‘garden-variety’ recession in commercial real estate.

“REITs were designed to invest in portfolios of rental properties, and generally pay no corporate income taxes if they distribute at least 90% of their profits as dividends to their shareholders.

“REITs thrive in an environment of steadily rising property values and rents. But in this ice age for commercial real estate, the REIT business model will cease to function properly; a REIT’s tax-free status doesn’t allow it to retain much excess capital during lean times. Since REITs pay out all their earnings, they cannot grow without taking on more debt. During the boom, a REIT strategy encompassing growth, leverage, and acquisitions was a virtuous cycle that led to juicy dividends and soaring stocks; in this bust, it’s morphed into a vicious cycle of dividend cuts, dilutive equity offerings, debt offerings at double-digit interest rates and bankruptcies.

“The REITs that levered up and grew too fast at the peak will go to zero in bankruptcy. Others could fall into the low single digits by year-end as the market anticipates that creditors will take title to many properties in 2009 and 2010. These developments would push the value of the REIT Index dramatically lower.”

Following that logic, Dan just handed his Strategic Short Report readers a short-REIT play with “200% profit potential.” Thanks to yesterday’s rally, it looks a whole lot juicier today… details here.
“I don’t know what in all honesty,” White House Press Secretary Robert Gibbs “government can do about it,” highlighting another industry ripe for short selling: flailing newspapers.

Of course, Gibbs assured us President Obama “believes there has to be a strong free press,” but it seems that any hope of a GM-sized bailout check from Uncle Sam was informally squashed yesterday. Alas, papers like The New York Times and McClatchy have borrowed just enough money to go out of business, but not enough to pose the all-so-critical “systemic risk” to the U.S. economy.

Only magnificent failure is rewarded in I.O.U.S.A.
Ten of the 19 banks undergoing government stress tests are going to have to raise capital… that’s the word from The Wall Street Journal this morning. Wells Fargo has now joined Citi and Bank of America on the unnofficial list of banks rumored to have been naughty.

No one will really know for sure until Thursday, when the government has promised to release results. But seriously, who’s cereberally challenged enough to believe this charade anyway?
The mighty greenback is looking knock-kneed and feeble as stocks soar. The dollar index dropped a full point, to 83.8, during yesterday’s rally. That’s a one-month low and nearly 6 points off its credit crisis high.

The dollar swing has given the euro a 2 cent shot in the arm, too. It’s up to $1.34 as we write. The pound followed suit, rising from $1.48 to $1.51 in less than 24 hours. Only the yen held pretty steady… around 98.
Gold likes it when the dollar sucks air. The spot price climbed $15 yesterday and another $10 this morning, bringing the current price up around $915 and ounce. Work it.
Oil has also been enjoying the stock rally, too. The light sweet stuff edged up higher again yesterday, this time to a 2009 high of $54.47 a barrel.
Quietly, gas has been inching back up to levels of concern. The national average price for a gallon of the cheap stuff is now solidly above two bucks… $2.07, to be exact.

Although compared to the average price this time last year — $3.61 — who’s complaining?
A bankruptcy judge OKed Chrysler’s request to tap a $4.5 billion government loan yesterday, even though holders of their senior secured debt have yet to be repaid.

Investors and funds are filing motions left and right to stop the transfer of any assets to Chrysler… at least until the company ponies up $6.9 billion in assets to cover their debt obligations.

We doubt those “evil Wall Streeters” will get their way, but… oy… this thing is already a mess.

“The gurus in Washington say that the Chrysler bankruptcy is prepackaged,” writes Byron King. “And it’s going to be fast and easy. Yeah, right. Beware hubris. Like the previous administration thought that the Iraq war was going to be fast and easy.

“I used to practice bankruptcy law. Is there a courtroom anywhere in this land that’s big enough to hold all the players in a Chrysler bankruptcy? It’s the first ‘big’ automobile bankruptcy in the U.S. since Studebaker in 1933. There’s no recipe book for doing this.

“The judge in the case might just have to book Madison Square Garden to have enough space for all the participants. And everyone is entitled to their day in court. Considering the tens of billions of dollars in play, I expect we’ll see many days in court, up to and including the U.S. Supreme Court. That should take only a few years.”

But at least you’ll be able to drive one of these afterward:

The Fiat 500: Not Currently Available Near You

“After researching, over the past 10 years, the different venues of alt energy,” writes a reader, “I have invested what I can in geothermal. There is no other source that runs 24/7, has zero ecology damage and zero carbon footprint, is available virtually under every rock and is economically less expensive than any other source. We don’t have to wait for the sun, wind or enough uranium to be mined. Oh! We don’t have to figure out how to bury the byproduct in somebody else’s backyard (NISEBY).

“It is such a no-brainer that considering any other way must mean that there are serious politics involved. Maybe the wrong people will make the money. The difference in costs could go to solving the problems raised in I.O.U.S.A. Do you suppose that Big Oil would find it a problem if the grid were run on geo? It can be done.”

The 5: We suppose they’d be annoyed, but as an investor, why choose one or the other? Byron’s Energy & Scarcity Investor has strong plays in both oil and geothermal… check it out, here.
“So what if Byron King is right,” writes a reader, “that China now controls the ‘rare earth metals’ that are integral to the manufacture of guided ballistic missiles (and all the other knickknacks that we don’t really need — and some we probably do).

“I’d rather have the Chinese control them than the delusional, slobbering cowboys in our military. Maybe they’ll do something with these metals other than design weapons whose purpose is the wholesale slaughter of human beings. Besides, what are they going to do with them? Eat them? Of course not. They’ll sell them on the world market at market price and we can go on happily making new bombs, which, it seems, is the only thing we are really good at.”

The 5: Heh. You have a good point there.
“Hey, 5,” writes the last, “thanks for the ‘tip o’ the mug’ to Red Emma’s. In this day of lunatics and liars, Red Emma’s gives us a break, helps keeps us grounded. Not enough of that around these days.”

The 5: Best coffee (and transgender anarchist poetry selection) in Baltimore.

Source: Market Comeback, Sector to Short, Berkshire Meeting, Investing in Swine Flu and More!

If the credit-strapped suburban mall culture is truly on the rocks, how long do you think this can survive:

Lady Amaranth, Goth Temptress

Among our analysts, a debate brews at the heart of the current consumer conundrum:

“Cutting-edge apparel retailer Hot Topic,” writes Wayne Burritt, about the purveyor of goth clothing and lip-piercing paraphernalia, “is loaded with attractive fundamentals and technicals, while its call options offer an oversized premium. Hot Topic is a mall and Web-based specialty retailer that has a proven track record in the often-fickle teen and pop retail space.

“For the fiscal quarter that ended Jan. 31, sales jumped an impressive 8%, to $238 million, while profits shot up a whopping 19%, to $14 million. And that’s no fluke: For the year, the company’s bottom line surged a staggering 23%, to $20 million. In addition, sales in stores open at least a year — a key measurement of retail success — rose a solid 5% during the first quarter.

“No doubt about it: Those are solid fundamentals. I guess someone forgot to tell Hot Topic that we’re in the midst of a recession!”

“Hot Topic is in an industry with substantial and growing overcapacity,” argues Dan Amoss, our short side analyst. “This stock is hot because the market is myopically focused on a recent, fleeting success and ignoring reality. The reality, as you’re well aware, is ugly — especially in retail. And it’s extremely ugly for retailers that sell trendy clothing and accessories. The day of reckoning has arrived for this wildly overbuilt industry, and now it’s a brutal competition for survival.

“The long list of specialty retailers that will be fighting over what’s left of teenagers’ discretionary spending dollars includes Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Charlotte Russe, Claire’s Stores, Forever 21, Pacific Sunwear, Spencer Gifts, H&M, Buckle, Wet Seal, Urban Outfitters and Zumiez.

“Hot Topic Inc. is a specialty apparel retailer with lackluster prospects for sales and earnings growth. Yet the stock trades at the rich valuation — especially for this market — of 23 times trailing earnings. HOTT stock is priced for disappointment.”

Hmmmn… if you put a gun to our head, we’d have to go short with Amoss. But then, that’s what makes trading fun and interesting, isn’t it?
Existing home sales fell 3% in March after a faux rally in February, the National Association of Realtors admitted this morning. Within the anemic annual sales rate of 4.5 million units, “distressed properties” accounted for over half of March’s sales.

The median price for an existing home is down 12% since last year, from $200,100 to $175,200.
The credit crisis has stymied a unique feature of American society. According to the Census Bureau, 35.2 million people changed their residence from March 2008 to March 2009 — the lowest number since 1962. And back then, there were 120 million fewer Americans.

The New York Times does a rather unremarkable job analyzing the trend under way, but they do point to a couple of interesting changes in American society since the 1960s: Home ownership rates have risen and owners are typically less likely to move than renters. The median age of the country has edged up… old people move less often than the young.

But probably the most telling trend under way: Two-income families have become more common and increasingly necessary to maintain a middle-class lifestyle. “Finding employment for both spouses in a new location can be challenging,” says the Times.
And in this environment, it’s getting more challenging all the time. The line of Americans seeking jobless benefits grew even longer last week, the Labor Dept. says today. Their gauge of continuing claims — that’s people seeking unemployment benefits for more than a week — rose to a new record 6.13 million. New claims inched up 27,000, to 640,000, last week — not a record, but close.

While these numbers look awful — and they are — they’ll be a nonevent in trading today… this latest report was right in line with Wall Street expectations.
The stock market suffered through a wobbly trading day yesterday. Major indexes started down around 1% on not-so-great earnings. After some big swings, all the way up to 2% gains, the Dow and S&P 500 ended back down where they began. They ended the day down 1%, more or less.

And today, they’re off to another finicky start. Tech stocks are jamming, lead by a blockbuster earnings report from Apple. But with the jobless numbers and housing data… we can’t blame traders for being a bit squeamish. Most indexes opened around break-even this morning.
“Is the bounce still bouncing?” Bill Bonner asks, no doubt with a longer time frame in mind. “We don’t know. But we don’t trust it. They say the stock market ‘looks ahead.’ So it is possible for it to see things we can’t see. On the other hand, what was it looking at two years ago? Didn’t it see the economy going over a cliff? Apparently not.

“But investors tend to believe what they want to believe. And what they want to believe is that the stock market has had its vision corrected and now sees a recovery.

“Our guess is that they are wrong on both scores. The stock market is just as blind now as it was in early 2007… and there is no recovery coming anytime soon. By our reckoning, this is not a recession… this is a depression. In a recession, the bull market formula still works. It just needs a little time to rest… catch its breath… work off inventories… and rebuild cash accounts. But in a depression, the formula stops working.

“The feds have responded with zero interest rates… and $13 trillion worth of bailouts and boondoggles. But the old magic doesn’t seem to work anymore. This time, the formula no longer works. Consumers already have too much stuff — and no way to pay for it all. They have no choice; they have to cut back. This is not a pause in the long cycle of increasing consumption, debt and speculation. It is a reversal of the cycle — with less consumption and less debt (more savings). This is a depression.

“If left alone, this cycle will see falling asset prices, falling bond prices and rising savings for many years. Stocks should sell down to levels where they are attractive again — at average P/Es below 8… 7… or even 6. And with dividend yields above 5%.”
The dollar is down today, thanks mostly to some positive data from the eurozone. The European purchasing managers index beat expectations and printed at its highest level in six months this morning, which accelerated the recent profit taking the dollar’s been suffering. The euro regained the $1.30 mark, which helped push the dollar index back down to 86. The pound goes for $1.45 today, and one greenback will still score you 98 yen.
That dollar weakness has helped gold inch out of its recent trading range. With a few exceptions, the spot price had been bouncing between $880-890 this week. This morning, it’s just below $895.
“I’ve been following the agricultural scene of late with more than the usual interest,” says Chris Mayer. “I don’t think investors have yet grasped the extent to which drought and the financial crisis are going to hurt this year’s harvest in just about everything.

“We’re already seeing some muted effects in certain items, like tea. Tea prices are set to surpass the all-time highs reached last year. Drought is the main cause. Yields in tea-exporting countries such as India, Sri Lanka and Kenya have all fallen. These three countries produce half of the world’s tea export.

“In Sri Lanka, the world’s biggest tea exporter, drought will push tea production to a seven-year low. The financial crisis also led farmers to be more conservative about buying things like fertilizer, which adds to the low-yield woes.

“In Kenya’s Rift Valley, another tea-rich region, drought will also lower production. Auction prices in Mombasa — the global benchmark — are already 15% higher this year. Usually, the key time of year for tea is March-May, so perhaps it is the canary in the coal mine as for what we can expect. But tea is just the beginning.”
British researchers have developed a stem cell therapy that cures blindness. Scientists at the Institute of Ophthalmology at University College London say they’ve found an effective therapy for age-related macular degeneration (AMD), the most common cause of blindness. According to sources at The Sunday Times, at its current trajectory, the therapy will be a routine one-hour procedure available to patients in about six years. Pfizer has announced a plan to bring the therapy to patients.

You may recall our series of discussions on stem cell technology earlier this year. Our technology analyst, Patrick Cox, is as bullish as ever on the future of stem cell technology, and we’re inclined to agree. For better or worse, it seems like these technologies are quickly coming to fruition.

For a full array of stem cell picks, including one that just today became a target of a record level of SC funding, be sure to check out Patrick’s Breakthrough Technology Alert… but do it quickly: There are just 13 spots left in this month’s offering.
Drug companies are going to have to do their bit before governments around the world completely crowd out productive capital investment. Case in point:

Mr. Brown unveiled a plan of unprecedented deficit spending and tax hikes for the U.K. yesterday. His plan for this year and next would exceed the combined borrowing by all British governments since the Bank of England was founded in the late 17th century.

The Brown government’s latest budget plans to pump over $1 trillion into the U.K. economy over the next five years.

Should that plan come to fruition, the U.K. ratio of debt to GDP would hit nearly 80% by 2013 — likely topping even the U.S.’ (Still got nothin’ on Japan’s debt to GDP of nearly 200%.)

And just as many fear here in the U.S., Brown declared the rich will be funding this public spending spree. His government ordered to hike the tax rate on the country’s top earners by another 5%, to a stunning 50% rate. While that breathtaking rate will confiscate half the income of those earning over $216,750 a year, it will raise enough extra revenue to cover only 3% of Brown’s trillion-dollar spending plan.
“I heard you are updating your book Financial Reckoning Day,” a reader writes. “I read the first edition and look forward to the new one.

“In the new edition, you will probably make the comparison of the U.S. and Japan. I hope you will also address the issue in a post by Eric Fry. Here is an except from his post. It is the critical question that must be addressed for your readers:

“‘So we think it’s fair — and prudent — to wonder what sort of war we are fighting. Is the stock market of 2008 like 1974 — a market that dropped 45% from its high and then advanced, more or less, for the next 30 years? Or is 2008 like 1929, a market that fell 40% from its peak, bounced a little, then erased another 50% of its peak value before hitting its ultimate low?’

“I think it is more relevant to compare and contrast 1929, 1974 and 2008 in the U.S. than making the comparison with Japan. I foresee a chart that lists several economic conditions on the left vertical axis and 1929, 1974 and 2008 along the top, horizontally. The chart would be followed by a narrative discussion of each condition and the situation that existed during the three periods. This would be an entire chapter (or more) in the book. How are the periods the same/different? What predictions can be made from this analysis?

“The above analysis will either strengthen his case or result in a modification of it. Will we end up somewhere between what happened in 1929 and 1974, or is 1929 the situation we should expect?

The 5: Given the earnings rout on the S&P 500, and government spending on overdrive, we suspect 1929 — or worse — is what you can expect. But as you suggest, we’ll endeavor to give a more analytical answer in the book.

Source: Analysts Clash, American’s Aren’t Moving, Stock Outlook, New Sector to Watch, and More!

]]> http://www.contrarianprofits.com/articles/analysts-clash-american%e2%80%99s-aren%e2%80%99t-moving-stock-outlook-new-sector-to-watch-and-more/15862/feed 0 http://www.contrarianprofits.com/articles/china%e2%80%99s-threat-stocks-soar-a-housing-solution-and-more/15208 http://www.contrarianprofits.com/articles/china%e2%80%99s-threat-stocks-soar-a-housing-solution-and-more/15208#comments Tue, 24 Mar 2009 20:33:37 +0000 Addison Wiggin http://www.contrarianprofits.com/?p=15208 China calls dollar into question… why the red nation wants a new “international reserve currency”… Stocks boom… what happened the last time the Dow jumped 18% in 10 days…A smart way to solve the housing crisis… that will never survive Washington… Plus, signs of the times: UAE buys chunk of Mercedes-Benz, and a quiet change at AIG

So… here’s something interesting. The two biggest countries to have been left out of the “stimulus” spending due to the “Buy American” provision have come out in support of an IMF-controlled reserve currency in the last week.

Hmmnn…
“What kind of international reserve currency,” asked Zhou Xiaochaun, head of the People’s Bank of China “do we need to secure global financial stability and facilitate world economic…